Telcos respond to online communication regulation

Recently Reliance Jio, Vodafone Idea and the telecom trade association Cellular Operators Association of India (COAI) sent in counter-comments to the Telecom Regulatory Authority of India’s (TRAI) consultation on regulating online communication platforms. In these counter-comments they address various stakeholders who argued against the establishment of a licensing framework for online communication platforms.

One of the biggest points of contention has been telcos’ demand for a network usage fee— a charge, which they want online platforms to pay for the use of their networks, and which their PR-spiel refers to as “fair share” . While telcos argue that they need to be paid by online platforms for infrastructure development, other stakeholders have pointed out that this charge would be a violation of net neutrality.

It is feasible to define OTT communications services:
Vi:
“There are clear global examples especially EU and its several member countries who have laid law related to number based interpersonal communication services (NB-lCS) and number independent interpersonal communication services (NI-ICS). This aspect has already been covered in the TRAl’s consultation paper as well. In general, the NB-lCS cover services like Internet Telephony and Nl-lCS cover services like OTT communication. The submissions made by certain players that OTT-CS cannot be classified citing overlap of services etc. is devoid of merits as European Union and many of its member states have defined laws for such NI-ICS, and there is no technical challenge for it to be defined and classified in Indian context.”

MediaNama’s take:
A challenge in defining OTT communications is evident from Bharti Airtel’s submission, where they suggest that because the Paytm app allows two users to message each other even if they’re not making a payment, that Paytm must be treated as an OTT communications service. For all practical purposes, Paytm is a payments app. It is the same for other payments apps, including PhonePe and Google Pay, which also allow for messaging. It would hold that practically, bringing Paytm under a messaging license would be a mistake. At the same time, Paytm may argue that functionally, it is also the same as WhatsApp, which also allows messaging and payments. You may copy definitions from anywhere in the world, but functionally, how do you define a threshold where something stops being one type of app, and becomes another?

Similarly, how do you distinguish between email and messaging, given that email is another form of messaging? How do you distinguish between Zoom webinars and messaging? Direct messaging and chatting are key to many social media platforms. How do you treat slack, which is a mechanism for business and external collaboration? Creating a definition on paper is easy, but given that communications is an integral part of the Internet experience, and is integrated into many many applications, separating it out, and licensing it separately is a consumer-value destructive exercise, and we would advise that the TRAI proceed here with caution.

Innovation will not be hampered by definition:
Reliance Jio:
“It is important to note that while the scale and scope of services offered by OTT service providers might evolve with time, the true nature of their services remains unchanged – WhatsApp, Skype, & Telegram were launched and continue to operate as communication service providers; Netflix (in its digital avatar), Disney Hotstar & JioCinema were and are streaming service providers; and Dropbox, Box by Microsoft and Google Drive have always been used as cloud storage services.”

“There is an inherent obligation to comply with the applicable rules and regulations and law of the land for operating any commercial services in any global jurisdiction and one cannot avoid it by merely stating that this will hamper innovation.”

“….stakeholder acknowledge their [online platforms’] adherence to the IT Act, Intermediary guidelines, the Digital Personal Data Protection Act, 2023 (DPDP Act), among others. These regulations have already categorized OTTs into categories like Significant Social Media Intermediaries without hindering their innovation or growth. So, why should there be any contention if a telecom regulator is seeking to bring OTTs under its purview of better governance and consumer interest?”

MediaNama’s take:
Reliance Jio is responding to comments that We had made, that bringing online services under a licensing framework would hamper innovation, pointing out that online platforms take a long time to find the right product-market fit and therefore defining may limit the options.

While Reliance Jio says that the true nature of services remains unchanged, one of the examples it gives to that effect has changed its offerings over time. WhatsApp now offers UPI payments as a service. WhatsApp has, in fact, also collaborated with Reliance’s JioMart to provide an “end-to-end shopping experience” on the platform. Through this feature, users are able to browse through JioMart’s grocery catalog and make purchases all without leaving WhatsApp chat. With all of this being said, should WhatsApp still be called a communication platform?

Just like Reliance Jio points out, stakeholders have said that online platforms already comply with the rules and regulations of the country. The reason for contention is: Do online platforms fall within the jurisdiction of the telecom regulator? A recent judgment by the Telecom Dispute Settlement and Appellate Tribunal (TDSAT) concluded that OTT streaming services are not TV channels and therefore do not fall under the jurisdiction of TRAI but rather under the jurisdiction of the Ministry of Electronics and Information Technology (MeitY). If online streaming services are not under TRAI’s jurisdiction, why would online communication services be any different?

OTP verification is not sufficient:
Reliance Jio:
“OTT services are not bundled/tied to the bearer service provider’s identity and post OTP based verification; these services can be used using the internet bearer provided by any internet service provider which makes tracing of such users almost impossible. Further, being the communication service provider providing the security sensitive voice, video and messaging services, they are supposed to carry out their own KYC and cannot solely rely on the KYC done by the TSPs that too without any explicit arrangement to share such KYC details with the underlaying TSP.”

MediaNama’s take:
Once users are verified by telecom operators, mobile numbers serve effectively an effective form of identification. This method is widely in use: One-time passwords (OTPs) are used to verify bank transactions and even for Aadhaar authentication. Reidentification for each use case, including the usage of online services, whether they are online communcations or e-commerce, is an inconvenience to consumers, a waste of effort and time for all parties.

Netflix pays to send DVDs to its users in the US:
Reliance Jio:
“Axon Research, in its report on Europe’s internet ecosystem: socioeconomic benefits of a fairer balance between tech giants and telecom operators makes an interesting comment “It is interesting to note that even Netflix accepts contributing directly to the cost of its service delivery to consumers: we understand that in the U.S. areas with insufficient broadband coverage, which cannot support streaming services, Netflix delivers its content on DVDs. In those cases, customers pay Netflix for the DVDs, but Netflix pays the U.S. Mail for the DVDs’ delivery to its customers” ”

MediaNama’s take: This is not an accurate comparison. In the internet ecosystem, Netflix is already making a payment, perhaps not directly to Reliance Jio, but to its own internet service provider (ISP) as bandwidth charges for sending content across to other ISPs. The interconnection arrangements between ISPs across the world are a matter of negotiation between ISPs. As has been the experience in South Korea, with its flawed approach to Sending Party Network Pays law, interference in a settled economic equilibrium of market-driven interconnection arrangements can have disastrous consequences for all parties, including consumers. There is no market failure here, and the TRAI should avoid interfering in this domain, where regulation is unnecessary.

Telcos cannot raise charges for customers:
COAI:
“Contrary to popular belief, customer pricing for telco services is not elastic basis the data usage. The industry has high competitive forces that disallows any one operator to raise prices for data consumption.”

“TSPs (Telecom Service Providers) indeed operate in an intensely competitive market in India and there has been significant competition among them to acquire and retain customers. The low Average Revenue Per User (ARPU) in India is a testament to this intense competition, as telecom companies often offer affordable plans to attract subscribers.”

Vi:
“Regarding statements on increase in ARPU from data usage due to OTT service providers, we would like to draw the Authority’s attention to a December 2022 Press Release1 of the Government which mentioned the following:

• Around 1.5 lakh crores spent on acquiring spectrum through auction in 2022 alone,
• Almost 24 lakh BTS had been set up by December 2022 (7.4 lakh towers).
• Internet connections have jumped from 25.15 crore in March 2014 to 83.69 crore in June, 2022, registering a growth of 232%.
• Broadband connections rose from 6.1 crore in March 2014 to 81.62 crores in September, 2022 growing by 1238%.
• Average revenue realization per subscriber per GB wireless data reduced to Rs. 10.29 in June, 2022 from Rs. 268.97 in December 2014, a reduction of more than 96.17%.
• Average monthly data consumption per wireless data subscriber increased by 266 times to 16.40 GB in June, 2022 from 61.66 MB in March 2014.”

MediaNama’s take:
In 2017, Reliance Jio said that multi-SIM usage results in an understated ARPU. The company had an ARPU of Rs.156.40 in its September quarter results at the time but told investors that when adjusted for multi-SIM usage its ARPU in the smartphone segment would be Rs.329.

Just like 2017, multi-SIM usage is occurring today as well. If we go by the adjusted ARPU Reliance Jio shared back in 2017, there is a possibility that telcos are making much more per customer than the figures let on. This is also evident in the fact that both Airtel and Reliance Jio have shown a substantial increase in revenue over the last 5 years.

Finally, Vi points out that data usage increased 266 times from 61.66 MB in March 2014 to 16.40 GB in June 2022. Given the rise in data usage, users would automatically be interested in moving to higher tier data plans, which would invariably have a positive impact on telcos’ revenue.

Fair share exists in broadcast:
Reliance Jio:
“The concept of seeking share of revenue (fair share) from content provider is not new in India. A parallel exist in broadcasting sector, in which the network operators such as DTH/Cable TV operators gets either the share of subscription revenue to the tune of 20% to 35% in case of pay channel or get carriage charge in case of free to air channels or both in some cases. Such revenue share is in addition to NCF (Network Capacity Fee) charged to the customer for providing the bearer service on their network. A similar arrangement of fair share of revenue in internet-based OTT domain in which the internet provider gets revenue share from the content provider is fully justified.”

MediaNama’s take:
In a recent case heard by the Telecom Dispute Settlement and Appellate Tribunal (TDSAT) between All India Digital Cable Federation (AIDCF) and Star India Pvt Limited, it has been established that OTT platforms do not fall under the Telecom Regulatory Authority of India’s (TRAI) jurisdiction and are also not TV channels. If that is the case, both this example and the entire request for network usage fee wouldn’t be applicable. Moreover, what happened to ‘same service, same rules’? Why bring in a broadcast example when broadcast and telecom are not the same services?

Competition is not a fair argument against network fees:
Reliance Jio:
“The level of competition is a function of consumer demand and market adaptability. The existence of 4 fully functional TSPs offering 2G/4G/5G services on national basis provides sufficient competition in telecom market. This level of competition is also in line with global benchmarks. Pertinently, the things are not that dissimilar in OTT communications space, many OTT communication services have been launched over the years, but the dominant 2-3 OTT communication services continue to control the market share. Thus, the demand for no regulatory regime as there is sufficient competition is equally irrelevant”

MediaNama’s take:
Here, Reliance Jio is referring to comments that pointed out that OTTs have infinite competition which spurs innovation and that as such, “the TRAI needs to clearly demonstrate and publish evidence of market failure in messaging if it intends to suggest lack of competition as a reason for recommending licensing.” With only 4 players (Reliance Jio, Bharti Airtel, Vodafone Idea, and BSNL) dominating the telecom market at the moment, it would be unfair to say that there is sufficient competition. Even among these 4 players, TRAI’s recent telecom data suggests that Reliance Jio and Bharti Airtel have a 52.05% and 28.92% broadband market share respectively.

On the other hand, while yes, there are a handful of OTT platforms that are dominant, platform popularity is cyclical. By this, I mean that sure a platform like WhatsApp might be popular right now, but a new player could come up and replace it any day. This has happened to platforms like MSN Messenger and AOL which used to be extremely popular in the early days of the internet and were gradually replaced by other platforms.

We should not look at the competition argument in isolation. One must consider it in conjunction with the fact that spectrum is a rare resource that only telecom companies have access to. So while yes, OTT may have a few dominant players at the moment, new players have the capability to join in, but the same is not true for telecom. (more on this in the next section)

Spectrum exclusivity is incorrect:
COAI: “As far as rights over spectrum are concerned, stating that TSPs have an exclusive right is a misnomer, as spectrum auctions are held every year and any entity with the appropriate license, including the OTT Communication Service Providers, can participate and acquire spectrum for providing services.”

MediaNama’s Take:
“A Bidder is required to show a net worth of Rs.100 Crore per License Service Area (Rs. 50 Crore each for Jammu and Kashmir and North East Service Areas), in which the bidder wants to submit bids,” The Department of Telecommunications (DoT)’s invitation for applications for the Auction of Spectrum in 2022 said. Further, the COAI in its original comments mentions that TSPs contributed Rs.1.50 lakh crore in spectrum auctions.

Both these figures should make it clear that smaller communication platforms would never be able to bid for spectrum. Neither would they have the base capital to be eligible for spectrum auctions, nor would they have the capital to outbid TSPs in the actual auction process. As such, it is wouldn’t be fair to say that “any entity” can participate and acquire spectrum.

Don’t look at telcos ARPU in isolation, compare it to OTT revenues:
Reliance Jio: “The concern is not that TSPs are not earning, it is that despite the steady growth in ARPUs, the revenues will not be able to keep pace with the expense outlays due to paying capacity of consumers which is further severed by the subscription charges levied by the OTT players. Thereby creating a conundrum of how to fund the Broadband network expansion for both the TSPs and Governments alike when the lion’s share of additional revenue to the combined ecosystem goes to OTT players in the form of advertisement and subscription Revenue. The issue is complicated by the fact that [the] prevailing Internet pricing model, which is one sided, with only the end-user of the internet access service pays to TSP, while on the other side the content provider is able to earn revenue from both sides i.e., from [the] advertiser or from customer in the form of subscription revenue and has full flexibility to maximize their revenue due to two sided revenue model.”

MediaNama’s take:
Telecom service providers are access service providers, so they get paid for access services, which is a completely different business model compared to one the online platforms employ. For example, Google provides advertising services, app aggregation services through its app store, and cloud storage solutions to name a few. It charges customers for providing each of these services, just like any other business would.

If we are to observe the business models and revenues of OTTs, we also need to factor in that for telcos like Reliance Jio, access services are not their only source of revenue. Reliance Jio also runs an OTT service— Jio Cinema— which is also a subscription service. So, just like OTTs, who are able to earn revenue from multiple sources, telcos like Reliance Jio are also earning revenue from their diverse business offerings. Besides Jio Cinema, the company also has other offerings like JioCloud and a range of IoT solutions.

Secondly, the point about earning revenue from both sides, might not be entirely accurate. The source of revenue depends entirely on the business model of the platform. So while some, like Instagram and Facebook, operate on advertising revenue, other platforms like Netflix, rely solely on subscriptions.

OTTs can degrade telcos quality of service:
COAI: “OTTs, although not obligated to maintain Quality of Service (QoS), can lead to degradation of the QoS of Telecom Service Providers (TSPs) due to increased network congestion caused by the high data traffic associated with OTT services. Congestion caused by OTT services can adversely impact network performance at the time of natural disasters.”

Reliance Jio:
Tech-driven companies should ideally embrace, not shirk from, QoS mandates. After all, they often tout their investments in Content Delivery Networks (CDNs) to optimize content and service delivery, and they champion their efficient systems and processes. If these claims are true, they should be open to independent verification of such consumer centric services. Additionally, they always have the option of peering with TSPs to deliver assured QoS. Like TSPs/ISPs, monitoring and enforcement of minimum standards of quality of services will require OTT providers to make sufficient investments in their platforms, CDN and peering to meet the quality standards. The peer-to-peer service such as Voice, Video and messaging cannot be left on best effort basis and each service provider must meet quality standards such as Quality, call drop, message delivery time etc and [should be] audited by the regulatory bodies in the same way it is done for the licensed TSPs.”

MediaNama’s take:
Unlike what COAI says, online platforms are not degrading the quality of service of telco networks. The high traffic associated with these platforms is a by-product of the telco’s customers choosing to use the platforms. Moreover, as Professor Barbara van Schewick points out in her counter-comments, some online platforms, like YouTube, give customers the option of reducing video quality (and resulting bandwidth demand) instead of automatically adjusting the quality according to network conditions. Others simply adapt to the user’s network condition, reducing the quality of the media when the user’s network is congested or if the user is on a low-bandwidth connection. So, instead of increasing congestion, platforms are actively trying to reduce their data traffic.

Going to Reliance Jio’s point, the reason why it’s important for telcos to meet quality standards is because they use spectrum, which is a scarce national resource and the government needs to ensure that this resource is optimally used. Online platforms are not using this resource and therefore have no reason to be subjected to quality of service requirements. Secondly, the peering agreements Reliance Jio mentions would become an additional cost for online platforms, this would impede the growth of up-and-coming businesses, who would be unable to afford peering and would thus see slower speeds. This would also adversely affect competition, since bigger businesses who can indeed enter peering agreements would be guaranteed fast lanes with performance guarantees from ISPs making them the first choice for customers to the detriment of startups.

Finally, Reliance Jio calls for independent audits but one must question: are these audits even necessary? Online platforms have the financial incentive to ensure high quality of services because if they don’t customers would migrate to other platforms. So for instance, if WhatsApp is down, or is experiencing call dropping, users could very well move on to Signal or Telegram.

Network fee is not a tariff violation:
COAI:

• “The order on “Prohibition of Discriminatory Tariffs” is not relevant here and is being quoted out of context by other parties. Payment of “Fair Share Charge” is a B2B settlement.
• There is no violation of net neutrality if a peering charge is applied at an interconnection point between two networks to compensate for an imbalance of data traffic. This charge is applied in relation to the volume of the traffic and not for certain data from certain OTT.
• Such interconnection peering charge has no influence on the access of end customers to any content. Thus, network neutrality would not be at stake in this situation.
• As stated above we reiterate that our member TSPs are committed to follow the Net Neutrality principle as per their licensing conditions.”

MediaNama’s take:
Here, COAI is referring to certain stakeholders that said that the TRAI in its order “Prohibition of Discriminatory Tariffs for Data Services Regulations, 2016”, said that no service provider shall offer or charge discriminatory tariffs for data services on the basis of content. Any charging of network fees on the basis of content or type of service would violate this order.

Unlike what COAI says, network fees would have an impact on content access for end users. If a platform has to pay a charge, where would the company find the funds to pay this charge? The fee will invariably find its way to the customer.

On Selective banning:
COAI: “Selective banning aims to curtail actions or expressions that could exacerbate existing tensions, particularly if they pose a threat to a nation’s security or sovereignty. This process strives to maintain a delicate balance between individual rights and the broader well-being of the nation by restricting content or activities that could potentially harm its stability and integrity. Moreover, the entities are considering “selective banning of OTT Services for a specific period” as permanent banning. Thus, these entities are mixing two different issues into one which is grossly incorrect. These entities should realize that implementation of selective banning is being considered to ensure that financial services, health, education, and various other essential routine services can continue to operate for business as usual thereby minimizing inconvenience and suffering to the general public and will also help in controlling spreading of misinformation during unrest.”

MediaNama’s take: COAI made this counter comment to respond to stakeholders that said that if one service is selectively banned, bad actors will move on to others. This argument avoids the question at hand: would banning one app make a difference if users can move on to another one? MediaNama