Why cut off one's nose to spite one's face?

India is fast emerging as one of the top OTT (over the top internet applications) markets in the world. By 2020, it will be the second largest online video viewing audience globally. Amazingly, rural India constitutes 65 per cent of the video consumption despite rural net connectivity being only 40 per cent. Growth prospects are therefore impressive. We are already one of the leading countries in app downloads with over 12 billion in 2017 and exponentially rising (EY). Rabid consumer demand for YouTube, Netflix, Hotstar, Saavn, and other OTT content providers resulted in exponential growth of mobile phone and data usage — and the big beneficiaries of this boom are the telecom service providers (TSPs) themselves since OTTs are an essential and increasingly important element of the broadband value chain.

We consumed the highest data globally last year — the per day rate being 10 per cent higher than China’s and nearly 50 per cent higher than the USA’s. All this largely because of the humungous data demand pull from OTTs available on 4G. Innovation in OTTs has led to a rich and diverse internet, stimulating broadband demand and leading to operators deriving higher revenues through expanded and upgraded networks. After all, OTT apps can only be accessed through TSP networks. Sixty five per cent of Indians are still without internet access but the demand for OTT-delivered services is at an all-time high. If TSPs invest in expanding the reach of critical infrastructure to deliver internet services to these new markets, they will reap huge revenue benefits. 

Telcos need a symbiotic partnership with OTTs instead of an adversarial one. If the Telecom Regulatory Authority of India (Trai) and the government continue to extend a light-touch regulatory approach to OTTs, they will encourage a win-win-win situation for Indian consumers and therefore the economy, the TSPs and the OTTs alike. One would logically expect all-round cooperation between the partners. Alas, the situation on the ground is different and therein lies the rub. In the prevailing noise, many important facts tend to be missed.

Incumbent TSPs strangely want OTT services such as WhatsApp, Netflix, Saavn, and YouTube to be regulated under the same licensing regime that applies to them. Their contention is that since consumers tend to prefer the rich modern messaging over the obsolescent SMS, and Hotstar and YouTube over cable TV, they are comparable products/services. However, this erroneously overlooks the vast and critical differences between the two categories. This is akin to demanding that a bullock cart be subject to the same taxes and regulations as a Mercedes car as both travel on the same road.

TSPs make the highly flawed claim that the Indian Telegraph Act licensing applies to OTTs. A simple reading of the Act would show that the Act and licensing apply only to entities that operate communication networks. OTTs clearly fail this test and are anyway governed by the IT Act. The Telegraph Act discusses the “privilege of establishing, maintaining and working telegraphs” in a clear definition. Effectively, this means that licensing etc would apply only to entities that operate communication networks. 

In just over four years, OTT players have invested over $300 billion in internet infrastructure globally. And 90 per cent of this is towards building large data centres and equipment in third party colocation facilities

TSPs enjoy a powerful portfolio of precious privileges like interference-free spectrum, interconnection, right-of-way for laying networks, numbering resources, freedom to set commercial or viable tariffs (tariff forbearance) etc. OTTs have none of these — in fact, they are exposed to virtually no entry barriers, unlimited competition and offer near-free services to end-users. It is naive to claim ‘same service, same rules’ when the services are so utterly different.

There are other serious complexities too. Many OTTs offer a multitude of services and the innovative ways in which consumers use them create extremely blurred contours. What if someone edits a document online? Is this a communication service? Probably not. What if they multitask and chat on the same document-editing platform? Does that company now become a “communication service” provider? A licence raj in these circumstances will lead to a very confusing landscape for both TSPs and OTTs to navigate, and virtually impossible to administer/regulate. 

The TSPs’ contention that OTTs are not burdened by capital-intensive investments is also completely incorrect. In just over four years, OTT players have invested over $300 billion in internet infrastructure globally (Analysys Mason). And 90 per cent of this is towards building large data centres and equipment in third party colocation facilities — all critical digital infrastructure for our future.

Interestingly, TSPs have themselves started partnering with OTT services to gain a competitive edge. This current TSP-OTT partnership model, in fact, empowers the birth of more small businesses and startups due to its cost effectiveness. The TSP business model has also changed to focus on data packages — even offering free SMS and phone calls as part of a bundle.  

“Knowledge is knowing that tomato is a fruit. Wisdom is not putting it in a fruit salad.” Blind categorisation of OTTs with TSPs is damaging as the two are fundamentally different. Imposing heavy licences on OTTs stifles innovation. OTT services are in tremendous demand and are key drivers for data usage and mobile adoption. To push for greater regulations on OTTs is like cutting off one’s nose to spite one’s face.

The author is a honorary fellow of the IET (London) and an independent ICT Consultant. Views are personal. Research inputs by Chandana Bala