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HomeOpinionWhy OTTs, telcos mustn’t lock horns over infra cost-sharing

Why OTTs, telcos mustn’t lock horns over infra cost-sharing

There is no evidence to suggest that the increased penetration of OTT services has adversely affected the revenues and profits of telecom operators.

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On 23 July 2022, the Department of Telecommunications released a consultation paper on the ‘need for a new legal framework governing telecommunications in India’ for public feedback. The consultation paper kick-starts the process to modernise India’s telecommunications regime, which dates back to 1885. It aims to create a future-ready legal framework that factors in the sweeping changes that have occurred in the technology landscape across the world, over decades. However—as seen in jurisdictions such as the EU—the process may ignite debates regarding cost sharing between Over-The-Top, or OTT players like Whatsapp, Skype etc and Telecommunication Service Providers aka telcos.

In November 2021, CEOs of 13 European telecom companies, including the Telenor Group, Vodafone Group and Orange, wrote a joint letter, which called for a renewed effort to rebalance the relationship between global technology giants and the European digital ecosystem. Specifically, they want big tech platforms to contribute fairly to network costs. In May 2022, the issue gathered momentum as Margrethe Vestager, the European Commission’s executive vice-president for ‘A Europe Fit for Digital Age,’ said there is a case to be made for mandating technology companies to share telecom infrastructure costs. Recently, France, Spain, and Italy have petitioned the European Commission to formulate a legal framework to mandate OTT platforms to finance network infrastructure.

Such arguments have been made in India as well. In 2015, Bharti Airtel argued that the Indian government should impose a ‘network usage charge’ on OTT communications, which would be paid directly to telcos to fund the network infrastructure deployments that OTTs use. The company said that such a charge would incentivise telecom operators to optimise their service.

The cost-sharing argument by telcos is premised on the notion that all OTT providers use operators’ network infrastructure to deliver their services to consumers. However, as OTTs consume more bandwidth, operators contend that there will be a strain on network capacity. Consequently, they will be forced to upgrade infrastructure at a significant cost. Telcos also argue that investments made by them enhance network capacity and disproportionately benefit OTT players because they don’t share the network upgrade costs. Telcos add that a possible solution to this problem could be a cost-sharing mechanism between them and OTT players.

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Contribution by OTTs

At the outset, any assertion that OTTs do not contribute to network infrastructure upgrades is inaccurate. Between 2011 -2013, OTT players invested approximately $33 billion annually in network infrastructure worldwide, including data centres, submarine cables, and servers for data transport, delivery, and hosting, according to a report by Analysys Mason. Between 2014-2017, that number went up to $ 75 billion per year.

It is important to note that OTTs and telecom providers share a symbiotic relationship. OTTs rely on telcos to deliver their goods and services and drive demand for data services offered by operators. Moreover, there is no evidence to suggest that the increased penetration of OTT services has adversely affected the revenues or profits of telecom operators. On the contrary, the situation is the opposite. For instance, Bharti Airtel reported over a 27 per cent increase in revenue from mobile services for the first quarter of the financial year 2022-23—which the company attributes to an increase in average revenue per user and increased mobile data consumption. Overall, the net profit of the company saw a five-fold increase to Rs 1,607 crore. Similarly, Reliance Jio posted its best-ever quarterly revenue of Rs 27, 527 crore in the quarter ending June 2022.  

The OTT economy also has a positive spillover effect on the economy as a whole. For instance, a report by Broadband India Forum and Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste (WIK)—a Germany-based think tank—found that applications such as Google Hangouts, iMessage, and WhatsApp create significant value for consumers as they reduce transaction, search and information costs. It also estimated that a 10 per cent increase in OTT usage led to an average increase of $5.6 trillion in global GDP from 2000 to 2015.

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Net Neutrality

A mandatory cost-sharing framework may also raise critical questions about its intersection with net neutrality rules. The Net Neutrality Regulatory Framework in India was notified by the DoT in July 2018 after multiple rounds of detailed and inclusive consultation. It codifies the principle of non-discriminatory treatment and restricts any form of interference in the treatment of internet content. To put it simply, telcos are restricted from blocking, slowing down, or granting preferential speeds to any content.

A cost-sharing framework, however, may empower telecom companies to block or slow down content by OTT players who don’t enter into a cost-sharing arrangement with operators. Such a framework may deny users access to products or services such as communication and e-commerce apps. On the other hand, a telecom operator may also be incentivised to discriminate between OTTs that pay them and those that don’t. This is because preferential network access may bolster the demand for content offered by an OTT provider, consequently, increasing the bandwidth required to deliver it. As a result, operators might demand an additional fee.

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Implementing a cost-sharing framework

Implementing a cost-sharing mandate comes with its own set of challenges. Creating an economic model that can rationalise the cost and benefits shared among all network participants would take years. This is because critical questions that are a corollary to the notion of infrastructure cost-sharing, remain unanswered. Would revenue accrued to telcos by providing access to infrastructure be shared with OTTs? Would the type of services offered (such as streaming, cloud service, etc) by an OTT platform determine the cost to be shared? Even if a model is developed, it will likely be subject to multiple challenges as the design of a cost-sharing framework may put some players at a disadvantage.

The need of the hour is to create a framework that factors in India’s unique market realities. For instance, more than 90 per cent of the EU’s population has access to the internet. While the growth of India’s digital ecosystem, coupled with affordable access to the internet and smartphones, has significantly deepened internet penetration, millions are yet to be digitally connected. Almost 63 per cent of India’s rural population still does not have access to internet services. Therefore, efforts should be made to create demand for broadband by promoting OTT services. After all, network infrastructure is beneficial only if it can provide value to end-users.

This article is part of ThePrint-Koan Advisory series that analyses emerging policies, laws and regulations in India’s technology sector. Read all the articles here.

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