“OTTs Eating Into Our Revenue”: Telcos in India

On Tuesday, the Telecom Regulatory Authority of India (TRAI) held a seminar to initiate discussion on potential regulation of “over the top” services (OTTs) in India. TRAI organized the seminar to “understand perspectives of all stakeholders involved”, following grievances of telcos that OTTs are eating into their revenues and free-riding on their networks. In fact, a letter from the Cellular Operators Association of India (COAI) to TRAI outlines these concerns excellently. The letter, which I had the opportunity to see in print, objects that telcos take the trouble of laying and maintaining networks, while rapidly mushrooming OTTs eat into their revenue. Whatsapp, Skype and alternatives to paid text-and-call find particular mention in the COAI’s letter, and the COAI President Vikram Tiwathia was vociferous in his iteration of operators’ concerns. With VOIP and other OTTs replacing telco services, telcos are rapidly losing large parts of their revenue, he said.

I don’t mean to brush their concerns aside, of course. However, there is a need to consider in depth certain questions with statistical, regulatory and principled exploration. As Dr. Rajat Kathuria of ICRIER said at the Seminar’s first session, we need to evaluate whether there’s a need for regulation in the first place. This includes exploring whether the answer lies in deregulation, as Suhaan Mukerji of PLR Chambers and Subho Ray of IAMAI emphasized separately. Our solution, as Mr. Ray said, should not be to chain the free OTTs just because we are in chains ourselves. Unchaining telcos from their stringent licensing and other regulations may be more appropriate.

The Seminar was attended by telcos, OTTs, civil society and other stakeholders, and the frank exchange of views at the PHD Chamber of Commerce was heartening. While telcos in the room were broadly open to OTT innovation upon their networks (Mr. T.V. Ramachandran of Vodafone was particularly vocal on this), there exists a broadly reactionary loss-of-footing and apprehension over their current and projected revenue loss. Mr. C.S. Rao of Reliance was spot on when he said that telcos are afraid that what’s worked for them so far may not work in the future.

We’ve seen examples of such fear of incumbent operators before. In the early 1990s, the invention and spread of the Internet displaced appliancized, bundled models of telco services, and telcos were similarly unwelcoming. Indeed, AT&T went to court to fight the introduction of the Carterfone. In India, the falling demand for VAS today, and OTT-response to consumer demand, fosters such fear.

But accounting for OTTs’ lack of consumer servicing or responsibility for monetization models, what was of chief concern at the TRAI Seminar was the predominant focus on revenue. Telco profitability and their incentives for investment are important. Increasing supply side costs, with the government seeking to maximize revenue from spectrum allocation and demands of lower consumer prices, might be throttling current telco business models. We’d need to analyse data usage charges and projected mobile broadband penetration, in comparison with voice penetration, to be clear about the extent of such strangulation. But if the answer to failing telco business lies in further regulation and potential strangling of innovation, that’s a concern.

That’s in two ways. First, it isn’t merely the NetFlix or Google or Apple that populate the app economy. Raman Chima (ironically of Google) offered the example of Slideshare in Okhla, Delhi as one of the many successful Indian micro-multinationals. There are many others across India. Second, India’s current telecom regulatory model is unfit for a data/Internet content model. There’s a need, Suhaan Mukerji and Mahesh Uppal of ComFirst pointed out, to rethink our strict telecom licensing regime. We should begin to think, at least, of a vertically integrated layered model of telecom regulation that regulates on the basis of function.

These layers are integral to Internet architecture: network, transport, application. OTTs lie at the application layer, while telcos operate at the network and transport layers. It may be inefficient to utilize failures at one layer to regulate or share revenue of companies at other layers – that would stunt competition and innovation. A reconfigured licensing regime, permitting telcos to innovate more (someone at the Seminar said security clearances take years, while OTTs need no such clearance) might be more efficient and beneficial for all stakeholders involved – not least the disempowered individual consumers.

That’s my sense of the Seminar. Profitability and incentives are crucial. But they are crucial insofar as they benefit consumers – with access, choice, freedom of speech, security and privacy. Revenue sharing or partnership models, which were mentioned far too many times by multiple speakers without sufficient justification or elaboration, may not be ideal for any of us in the long term. But these are issues we – and TRAI – should consider while debating a regulatory framework.

Underlying infrastructure has an impact on our fundamental freedoms such as speech – the Supreme Court’s decisions in Sakal Papers and Express Newspapers makes that clear. Fast-paced innovation and the boundary-less benefits of a single, interoperable Internet have pushed us to favour security against freedoms. But every model we consider today – ad-based monetization, big data analytics – have implications that the NSA’s mass, cross-border surveillance has highlighted. Since TRAI is rethinking our regulatory framework for telecom and the Internet – and I envisage this going into a constructive consultation in the near future – these issues must inform its analysis and conclusions.

For more, read Nikhil Pahwa’s report over at MediaNama.