OTT in Telecom Bill — Sending the wrong message?

Public consultation on the draft Indian Telecoms Law 2022 ends in a day. Maybe it’s a good time to say one last word.

Many comments were made on various aspects of the bill, not the least of which was the inclusion of OTT or over-the-top services in the bill’s definition of telecoms. For the uninitiated, OTT services refer to services provided over the internet – streaming services, text, voice, and video messaging, e-commerce, etc. Since then, the Department of Telecommunications, or DoT, has clarified that it intends to first Line to regulate only the communication of OTT a security perspective, drawing an equivalence between voice and internet calls.

From a regulatory perspective, a distinction must be made between the telecommunications operations – which encompass the physical and technological aspects of the infrastructure and the business aspects of the network – and the telecommunications services that are provided using those operations. That is, to distinguish the means of delivery from the services provided by those means.

In most jurisdictions including India, both are regulated or regulated in some form. Telecom operations, including market entry, pricing decisions, etc. are all very tightly regulated. Likewise, there are some requirements for the services provided through these means – for example, prioritizing emergency calls or providing services to individuals under certain conditions. The justification for the two regulatory interventions is very different. It’s just that in telecommunications, the identity of the network and service providers is the same – the telcos. And that’s why not much attention is paid to this distinction.

But with the advent of OTT services, that has changed.

Telecom infrastructure is now used to provide services over the Internet – telcos typically provide access networks. And these services are not provided by telecom companies. Therefore, the distinction between regulating the means of delivery and the service provided by those means becomes important.

Telecom regulation is economic regulation through and through.

The provision of telecommunications services uses a scarce public resource – radio spectrum. For various reasons including rationalization and optimization, avoiding and solving interference spectrum management requires coordination between the different actors. This is done centrally worldwide by a regulatory authority. Frequency management has evolved over time and become more flexible. An example is the introduction of a secondary market. But spectrum management is very much a regulatory area. And since the assignment of the spectrum is exclusive, this gives the assignee market power in the telecommunications sector.

The technological and physical characteristics of the telecom sector mean that there are economies of scale in telecom coverage. That is, the cost of providing telecommunications services falls across the entire operating range. The more users use the telecommunications company’s services, the more users can spread the initial operating costs. And once the infrastructure is in place, the cost of maintaining a new user is negligible. These characteristics mean that telecom companies must have scale to operate efficiently – there can’t be too much competition in the telecom market.

Because there will be natural monopolies in the provision of telecommunications services, investing in quality cannot be relied on to compete. The government therefore uses licensing requirements to control entry into the telecoms sector. The reason for licensing is to maintain a certain quality of delivery by specifying technological and quality control requirements, among other things. Licensing creates market entry barriers and is becoming a further source of strengthening the market power of established companies.

All of these tedious details imply that regulation of the operations of the telcos, including business decisions such as pricing, may also be needed. There may be a natural tendency to raise prices towards monopoly levels.

The governance of the services provided in this way is governed by reasons entirely different, such as consumer protection and safety, or a broader goal such as national security. But these services don’t require centralized coordination, they don’t use scarce societally valuable resources (they’re used to provide the funds but not the overlying service), their market structures tend to be fairly competitive, and licensing won’t just increase It breaks barriers to entry where there are none, but it will also kill innovation and entrench incumbents.

Telecom’s legacy comes from a sector where infrastructure and service – telecom – are indistinguishable. But with the growth of the internet and the advent of OTT services, that is no longer the case. An analogy to road infrastructure could be drawn here. Governments play a large role in providing road infrastructure and various government agencies, local bodies, public works departments, state governments and the NHAI are involved in the process. They provide financing, build or have built, regulate operation and other procurement, set quality standards, etc. However, these bodies are not involved in setting vehicle safety standards. They merely ensure the means of providing transport services. All governance of these services is separate.

India already has regulation for services provided over the Internet, the Information Technology Act. Incidentally, this law is also being revised. OTT services should be governed by these regulations.

Simplifying and sticking to the purpose of regulation also ensures that regulations are as technology-neutral and future-proof as possible. And introduces much-needed regulatory certainty. BQ Prime