Consumers cannot be the collateral in OTT tussle

The Economic Times, April 25, 2023 

By Pradeep S Mehta & Shiksha Srivastava

Lately, the Over the Top audio visual entertainment has become the flavour of the day with huge choices before consumers who can watch movies and serials anytime. Peculiarly, a debate is ongoing between telecom (internet) service providers (TSPs) and the OTT service providers on regulation of OTT services. However in this debate the raison de’tre of the system, consumers, are missing. The risks intended to be addressed by subjecting OTT service providers to additional regulations similar to TSPs, are also not clear. There have been valid concerns that it may negatively affect consumers. These concerns should be examined in depth, before amending any policy or amendment of relevant laws.

The OTT service providers are currently regulated under the Information Technology Act, 2000, and will be subject to additional obligations under upcoming digital personal data protection law. The TSPs have demanded that OTT service providers should share the infrastructure cost and be subject to similar rules as them. Telecom regulations will also then apply to OTTs in some form, in this quest of ‘levelling the playing field’.

For cost-sharing, TSPs have demanded a model where the sending party network pays (SPNP) the network operator. A similar model of revenue sharing arrangement has seen mixed success in international jurisdictions. The Telecom Regulatory Authority of Thailand attempted to establish such a revenue-sharing framework, but did not proceed with the same due to concerns of consumers and industry experts that it would increase costs and hinder innovation and economic growth. In effect, while some jurisdictions proposed or considered it, only one country has ever implemented such an internet traffic tax.

South Korea began the introduction of SPNP in 2016, then expanded it to large content providers in 2020. The general consensus is that the arrangement has been a failure. This has resulted in reduction in streaming quality of audiovisual content by OTT providers in order to preserve costs, as well as increase in subscription prices. Netflix has increased its price for its premium package by 17.2% and its standard plan by 12.5%. The results also include exit of players from the market and increased data costs and latency. As per an OECD study the latency has gone from approximately 120 milliseconds in 2018 to 160 milliseconds in 2020. More than a dozen civil society groups had appealed to the government of Korea to revoke the SPNP rule.

In 2012, the European Telecommunications Network Operators (ETNO) group suggested that the United Nations’ International Telecommunication Union (ITU) recommend the national governments to adopt the SPNP model. There was rapid and unequivocal reaction to this proposition. The Body of European Regulators for Electronic Communications (BEREC) had rejected the idea and concluded in its assessment that SPNP could cause significant damage to the internet ecosystem.

The telecom industry globally and especially in India is a highly regulated sector. The success of OTTs with their innovative models has been attributed largely to light touch regulations. At the same time it cannot be understated that TSPs are under pressure to upgrade their telecom infrastructure with the rising traffic and demand for faster internet. This warrants a case to rationalise the regulatory framework for TSPs by doing away with unreasonable requirements.

While the concerns of TSPs should not be entirely ignored, costs and benefits of this solution in India should merit review. Additional requirements upon the OTT providers could act as barriers to entry for potential players. This would adversely impact competition and innovation in the market, which is critical to preserve and promote consumer interest. For instance, some OTT service providers, particularly the smaller ones who offer unique and customised content to consumers, may not be in a position to enter into mutually beneficial cost-sharing arrangements with the TSPs. Their services may be deprioritised or disallowed on the network, impairing consumer choice for accessing services they desire.

India is witnessing a growth of regional and local OTT providers, which are provided by small and medium sized providers. These should be promoted and protected from disruptive markets. In Korea, due to SPNP many OTT providers could not handle the higher cost of hosting their content and either moved overseas or were outcompeted by foreign counterparts.

Moreover, there are risks of internet fragmentation and threat to net-neutrality. The principles of open internet which ensure a global playing field might get lost due to fragmentation, where certain content will be available on certain TSPs, resulting in parallel unconnected internet systems or ‘splinternet’. In such a scenario cross border services will require negotiating accessibility terms by navigating complex regulations, in each network.

Similarly, should OTT service providers decide to pass on the cost, the consumers will face double whammy as they would need to pay the TSPs for network access, and to the OTT services providers for accessing their services. This might particularly impact consumers who overwhelmingly depend on OTT services for information, education, upskilling, and income generation.

To meet additional costs, OTT service providers may be forced to redirect investments planned towards expansion, enhancing consumer experience, improving quality of services, and redressing grievances. This could also adversely impact consumer welfare. The potential of the OTT industry to generate employment and contribute to the national economy may also be affected if avoidable regulations are adopted, and could also run contrary to the ease of doing business agenda of the government.

A critical examination of these potential regulatory changes should be a priority. All regulations must be aimed at preserving and enhancing consumer interest. They must prevent unintended adverse consequences on consumers, and should be beneficial for them. Any change from the regulatory status quo for OTT service providers should pass the tests of legitimacy, necessity, and proportionality, and be subjected to cost and benefit analysis. Similarly, applicable frameworks for TSPs, including the draft Indian Telecommunications Bill, should be reviewed on these parameters to create a future ready regulatory framework for the country.

The authors work for CUTS International, a global public policy research and advocacy group.

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