In an era dominated by digital innovation, the Telecom Regulatory Authority of India (TRAI) finds itself at a crossroads, revaluating its approach to regulating over-the-top (OTT) communication services like WhatsApp, Zoom, and Google Meet. As the digital landscape evolves and reshapes the way we communicate, the question of how these services should be governed becomes increasingly pertinent. In the ever-evolving digital age, over-the-top (OTT) platforms have become an integral part of our daily lives, revolutionizing how we consume entertainment, communicate, and access information. Simultaneously, the telecommunications industry has been at the forefront of building and maintaining the critical infrastructure that underpins this digital revolution. As the symbiotic relationship between OTT platforms and telecom providers continues to evolve, a contentious question looms large: should OTT platforms contribute to the cost of digital telecom infrastructure by paying a broadband infrastructure levy? This debate encompasses a wide range of perspectives, touching upon issues of fairness, shared responsibility for infrastructure development, and the overarching impact on innovation and investment in the digital landscape.
Understanding OTT Services
OTT services, or "over-the-top" media services, refer to online content providers that offer streaming media as standalone products. While this term is often associated with video-on-demand platforms, it also extends to encompass audio streaming, messaging services, and internet-based voice calling solutions. The rise of these services, which rely heavily on data usage, has been especially pronounced in India, particularly during the COVID-19 pandemic. This surge in popularity has driven a remarkable increase in monthly wireless data usage1 in the country, with figures growing approximately 156 times from 2014 to 2022. This transformation has shifted revenue generation away from traditional voice and SMS services to data usage.
The Current Regulatory Landscape2
Currently, India lacks a specific regulatory framework for OTT communication services. TRAI has issued multiple consultation papers on this issue since 2015; however, no definitive recommendations or regulations have been implemented. In September 2020, TRAI recommended against regulatory intervention for OTT platforms, advocating for a market-driven approach. While TRAI acknowledged the need for monitoring and potential intervention at the appropriate juncture, it refrained from imposing immediate regulations. Nevertheless, in 2022, the Department of Telecommunication (DoT), the ministry responsible for telecom policy and licensing, suggested that TRAI consider a regulatory mechanism and selective banning of certain OTT services.
The Case for Regulation
Several reasons are cited in favour of regulating OTT communication services:
Levelling the Playing Field
Telecom service providers (TSPs) in India are subject to various regulations, fees, and quality standards, whereas OTT platforms providing similar services often operate with fewer restrictions. This creates an uneven competitive landscape and potentially impacts TSPs' revenue streams. Telecom operators argue that the revenues generated by OTT platforms are intrinsically tied to the network usage they drive. This viewpoint prompts the suggestion that a proportional contribution from OTT platforms towards infrastructure costs aligns with the broader concept of equitable partnership. This contribution, ideally, would be determined through mutual agreements on usage charges.
National Security and Lawful Interception
Regulation becomes imperative to ensure that these platforms are subject to lawful interception and monitoring by security agencies, thus safeguarding national security and public order. Accountability for illegal content or activities on these platforms is crucial for maintaining a safe digital environment.
Universal Service Obligation Fund (USOF)3
OTT platforms are not obligated to contribute to the USOF, which supports the extension of telecom services to rural and remote areas. This places the financial burden predominantly on TSPs, necessitating regulatory measures to ensure equitable contributions.
Investment in the Digital Telecom Ecosystem
The creation and maintenance of digital telecom infrastructure, encompassing data centers, undersea cables, content hosting centers, and content delivery networks, necessitate substantial investments. Telecom providers contend that these investments disproportionately benefit OTT platforms by providing the robust and highspeed networks that facilitate the delivery of their services to end-users. A broadband infrastructure levy could serve as a means to bridge this investment gap, promoting ongoing investments in advanced high-speed networks that are essential for seamless digital experiences.
The Argument against a Broadband Infrastructure Levy
While proponents of this idea argue that such a levy could provide a sustainable source of funding for critical infrastructure projects, there are several compelling arguments against its implementation that need to be considered:
Innovation and Competition at Stake
Opponents of the broadband infrastructure levy emphasize the potential risk it poses to stifling innovation and competition in the digital landscape. The introduction of such charges could inadvertently create barriers to entry for smaller OTT players, thereby dampening innovation and limiting the diversity of content and services available to consumers.
Impediments to Investment The current OTT market
4 in India is pegged at Rs. 10,500 crores, estimated to grow up to Rs 30,000 crores by 20230. Critics argue that imposing levies on OTT platforms may have a detrimental impact on overall investment in the digital economy. The principle that minimal regulation attracts greater investment gains relevance here. By introducing additional charges or regulatory measures, there is a potential risk of dissuading investors from directing funds into digital infrastructure and related services.
Consumer Impact
A significant concern revolves around the indirect repercussions of a broadband infrastructure levy on consumers. As OTT platforms grapple with heightened operational costs, they may be compelled to transfer these additional expenses to users. This could manifest as higher subscription fees or curtailed free services, ultimately burdening the end-consumer.
Unintended Consequences
The case study of South Korea serves as a cautionary tale. The implementation of the Sending Party Network Pays (SPNP) model resulted in escalated consumer prices, a reduction in content diversity, increased latency, and a decline in network investments. This underscores the importance of anticipating potential unintended consequences when proposing levies that could significantly reshape the digital landscape.
Impact on the Startup Ecosystem5
The Internet and Mobile Association of India (IAMAI) raises concerns that imposing licensing provisions on OTT service providers could potentially erect insurmountable barriers for startups. Over-regulation might hinder the growth of India's vibrant startup ecosystem, stifling future innovation and curtailing the potential for disruptive technologies.
Draft Telecommunications Bill, 2022
The draft Indian Telecommunication Bill, 2022, among other matters, sets out to address this imbalance between TSPs and OTTs by expanding the definition of "telecommunication services6" to include OTT communication services. This step signifies a potential paradigm shift in the way these services are regulated. If the draft becomes law, OTT communication services may be subjected to the same licensing conditions as TSPs. This implies that OTT platforms, which currently operate without the Unified Access Service Licence (UASL) required for TSPs to offer telecom services, could be subject to stringent regulations.
Global Perspectives
The debate on OTT regulation is not limited to India. In Europe7, telecom operators have advocated for technology companies to contribute to network costs, with the European Commission considering potential legislation. However, the experience of South Korea, where similar regulation was introduced, serves as a stark reminder of the potential pitfalls of such an approach. In 2016, South Korea embarked on its Sending Party Network Pays (SPNP)8 which stipulates that that the party sending data traffic over the internet is obligated to pay a fee to the user's internet service provider (ISP) for the content to be successfully delivered. However, it didn't stop there. Four years later, South Korean telecom operators sought to expand the model to encompass large domestic and foreign content providers like Google, Facebook, and Netflix.
The consequences of South Korea's SPNP experiment have been notable and sobering. Studies have highlighted the substantial increase in consumer prices since 2016. The country now boasts some of the world's highest rates for mobile data, with the average cost of 1GB exceeding €12, compared to Europe's average of just €1.85. Furthermore, South Korean consumer prices for mobile data are seven times higher than the European average and more than double that of the EU country with the highest rates, Finland.
The repercussions extend beyond data pricing. South Korean consumers have witnessed a 12.5 percent surge in Netflix subscription costs due to an ongoing legal dispute between the streaming giant and Korean ISP SK Broadband. Latency rates, which measure data travel time, have also skyrocketed. South Korea now holds the unenviable position of having the worst latency rates among OECD countries. Latency went from approximately 120 milliseconds in 2018 to almost 160 milliseconds just two years later, while European nations demonstrated a positive trend toward decreasing latency.
The SPNP model's adverse effects go beyond the realm of consumer wallets and internet quality. The market's competitiveness has dwindled, and network investments have faltered due to the pressure on content providers to pay exorbitant network fees.
The Way Forward
As the debate over regulating OTT communication services continues, a balanced approach is essential. While regulation may address concerns regarding competition, national security, and revenue distribution, careful consideration is needed to avoid unintended consequences. Striking a balance between encouraging innovation, fostering healthy competition, and ensuring network investments is crucial. Furthermore, any regulatory framework should recognize the broader ecosystem's complexity. OTT platforms often contribute significantly to the economy, not just through their services but also by generating revenues and opportunities across various sectors. Consequently, a comprehensive view must be taken to avoid stifling innovation and harming the overall digital ecosystem. Ultimately, the ongoing deliberations on regulating OTT communication services in India underscore the complex interplay between innovation, competition, security, and investment. As India navigates this evolving landscape, policymakers must weigh the benefits and drawbacks carefully, ensuring that any regulatory decisions promote the growth of the digital economy while safeguarding consumer interests and national security.
Footnotes
1. Available at: https://www.trai.gov.in/sites/default/files/Annual_Report_06042022_0.pdf
2. Available at: https://www.trai.gov.in/notifications/press-release/trai-releases-consultation-paper-regulatory-mechanism-over-top-ott
3. Universal Service Obligation Fund (USOF) was set up by an Act of Parliament in December 2003 by amending the Indian Telegraph Act,1885. Objective of USO Fund is to provide access to telecom services in a non-discriminatory manner to people in the rural and remote areas at affordable and reasonable prices, there by bridging the rural-urban digital divide.
4. Available at: https://www.thehindubusinessline.com/news/indian-ott-market-set-to-reach-30000-crore-by-2030/article66760012.ece
6. Section 2(21) of Draft Telecommunications Bill, 2022; Available at: https://dot.gov.in/sites/default/files/Draft%20Indian%20Telecommunication%20Bill%2C%202022.pdf
7. Available at: https://www.project-disco.org/european-union/091422-south-koreas-internet-traffic-tax/
8. Available at: https://carnegieendowment.org/2021/08/17/afterword-korea-s-challenge-to-standard-internet-interconnection-model-pub-85166
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