OTTs vs telcos: Who will steal a march in 'Walled Garden' season 2?

As telecom companies and OTTs tussle over revenue-sharing for data usage, the jury is still out on who will prevail

Prateek, a 30-something executive working in a private firm, got down the elevator at a multi-storeyed apartment complex in the National Capital Region with his eyes and ears fixed on the small screen in his hand. He walked to the parking lot without losing a screen moment, got into his car, fixed the mobile phone in front of the steering wheel and drove away, glued to a web series that was perhaps a conversation starter within his peer group later in the day.

This was just before the first wave of Covid-19 hit life and livelihood, and work from home was yet to become the new normal. Net neutrality, which had turned into a raging battle some eight years ago in the country over Facebook’s Free Basics, was hardly on anybody’s mind anymore. But over-the-top channels (OTTs) like Netflix, Amazon Prime, Hotstar had been cutting into call time already. And then the pandemic made room for ample hours of binge-watching what was available on OTTs along with remote meetings on Zoom, Google Meet, Microsoft Teams and what have you.

As a result, the number of Prateeks multiplied rapidly, consuming OTT content 24x7, whether for work or entertainment.

Logically enough, the share of data — that enables access to OTTs — rose dramatically in the overall consumption pie of telcos. A recent paper of the Telecom Regulatory Authority of India (Trai) offered some eye-popping numbers to explain the phenomenon over a decade: The share of revenue from data grew more than 10-fold to touch 85.1 per cent in the September-to-December 2022 quarter, from just 8.1 per cent in the June 2013 quarter per subscriber. Trai goes on to say that in the same period the monthly average revenue per user (Arpu) rose only about 41 per cent to Rs 146.96 from Rs 123.77. Also, within that Arpu, the share of revenue calls dropped to Rs 14.79 from Rs 72.53 almost a decade ago. In other words, the share of revenue calls was down to 10.1 per cent of the Arpu from 58.6 per cent. There was a similar decline in the revenue share from SMS.

It’s no surprise then that telecom service providers have been watching intently how a clutch of relatively new businesses (OTT players) turned into show-stoppers. Telcos, who were busy fighting their own battles to beat the financial stress in the sector after years of low tariff, disruption in the market, high spectrum cost, revenue-sharing with the government and litigation, were now bracing for a new battle — with OTTs.

It’s all about the moolah, you may say, but the narrative has found a spin — that of net neutrality, and how! Telcos have for some time argued that OTTs cannot laugh all the way to the bank while denying the carrier (telecom service provider onto which the OTT apps are loaded) a share of the revenue.

More recently, OTTs and advocacy groups backing them have slammed the telcos with the allegation that they have violated the net neutrality norms. The net neutrality argument has come out during the ongoing consultation process with Trai as a regulation is in the works for OTTs.

Even as OTT viewership has come down significantly with employees returning to the workplace, telcos are in no mood to give up what they believe is their legitimate share of revenue. Telcos are together in this even if some of them are part of the OTT ecosystem, too. They have made submissions to the government and Trai questioning why OTTs must pay. Business Standard reached out to Bharti Airtel, Vodafone Idea and Reliance Jio for comments on the issue of revenue-sharing. At press time, they had not responded.

Just about a year ago, in an interview with Business Standard, then chief executive officer of Vodafone Idea Ravinder Takkar made a strong pitch for OTTs to share their revenue with the telecom networks they were riding on. Calling revenue from the digital services an “opportunity” for telcos, Takkar had said, “I don’t want to be in competition with the digital players when they are using my network.” Bharti Enterprises Chairman Sunil Mittal, too, in an interview with this newspaper earlier this year expressed similar sentiments. “I think the OTT world should learn to share the burden of our telecom rollout. Telcos are spending hundreds of dollars globally on building networks. The total cost is going to be upwards of $2 trillion in rolling out the 5G networks. Who enjoys it?” While pointing out that telcos put up the network and OTTs just ride on it, Mittal had said, “There should be some money coming from them. Why not?”

According to Cellular Operators’ Association of India (COAI), a fairer allocation of network costs can ease the pressure on consumer prices for communication services as the only way to meet the enormous investment needs of the sector. “OTTs contribute nothing towards network expenses,” COAI Director General S P Kochhar has told Trai.

Representing the other side of the spectrum, the Internet and Mobile Association of India (IAMAI) said in its submission to Trai that in case OTTs were to share their revenue, telecom service providers would effectively be charging twice for the same service as they already charge consumers for data. “Telecom companies complain that data usage is surging. But that is merely the data consumed by users who have already purchased it from telecom companies,” IAMAI, which represents around 500 Indian and multinational corporations including Google, Amazon, Meta and Apple, said.

More than anything else, it’s the noise around net neutrality that’s driving the debate now. OTTs have protested against the fair share revenue, saying it would demolish net neutrality in India. Net neutrality is the principle that internet service providers should enable access to all content and applications regardless of the source, and without favouring or blocking particular products or websites. A Trai regulation in 2016 mandated that operators cannot charge discriminatory tariffs on the basis of content.

Telcos, represented by COAI, have dismissed the idea of net neutrality violation. The proposed fair share charge does not affect access to an open and free internet, COAI said, explaining that the Indian telcos are bound by their licence conditions to ensure net neutrality. “The price for the traffic paid by end users will not change depending on whether the traffic generator is subject to fair share payments or not,” it has said.

But is it an empty fight? Senior officials in the Department of Telecommunications have indicated that revenue-sharing between OTTs and telcos is not under consideration. IT and Communications Minister Ashwini Vaishnaw in a conversation with this newspaper also said the government does not want to impose a charge on OTTs.

But the jury is still out as Trai is yet to make its recommendation on this very contentious issue. At the peak of net neutrality times, walled garden was an expression much in vogue. Will OTTs remain on top of the game or will telcos’ call be heard as “walled garden” has entered season 2?

The internet’s ‘gated garden’

On the internet, a “gated garden” or a “walled garden” refers to a closed platform or ecosystem where the carrier or service provider has control over applications, content and media, and restricts convenient access to non-approved applications or content. This is in contrast to an “open platform” where consumers have unrestricted access. John C Malone, chief executive officer of US tech and cable giant Tele-Communications, coined the term in the mid-1990s to describe measures being adopted by online platforms back then to restrict technology, information and user data from flowing out. Tech giants Google, Apple and Facebook have all been accused of creating gated gardens to pocket ad revenues and app registration fees.