OTT In Telecom Bill — Sending The Wrong Message?

The public consultation on the draft Indian Telecommunication Bill, 2022 is about to close in a day. Perhaps it is a good time to get one last word in.

Many commentaries have been written on various aspects of the bill, not least on the inclusion of OTT or over-the-top services in the definition of telecommunication in the bill. 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 only regulate communications OTT from primarily a safety and security perspective, drawing an equivalence between voice and internet calling.

From a regulatory perspective, one needs to differentiate between telecom operations—involving physical and technological aspects of the infrastructure and business aspects of the network—and the telecommunication service provided using these operations. That is, distinguish the means of provision from services provided using those means.

In most jurisdictions, including in India, both of these are regulated or governed in some form. Telecom operations including entry into the market, pricing decisions, etc. are all very closely regulated. Similarly, there are some requirements on the services provided using these means—for example, prioritization of emergency calls or provision of services to individuals subject only to certain conditions. The rationale for the two regulatory interventions is very different. It just so happens that with telecommunications the identity of the providers of the network, and services is the same—the telecom companies. And therefore not much attention is paid to this distinction.

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

Telecom infrastructure is now used to provide services over the internet—telecom companies usually provide access networks. And these services are not provided by telecom companies. Hence, the distinction between regulation on the means of provision and the service provided using those means becomes important.

Telecom regulation is an out-and-out economic regulation.

Telecom provision uses a scarce public resource—frequency spectrums. For various reasons including rationalization and optimization, avoiding and solving interference spectrum management requires coordination among the various players. This is, across the globe, done centrally by a regulator. Over time there have been innovations in spectrum management and it has become more flexible. An example is the introduction of a secondary market. But spectrum management is very much a regulatory domain. And given that the assignment of the spectrum is exclusive this grants the assignee market power in the telecom sector.

The technological and physical features of the telecom sector mean that there are economies of scale in telecom provision. That is, the cost of providing telecom services falls over the entire range of operations. The more users the telecom company services, the more users it can spread the initial costs of operation over. And once the infrastructure is installed the cost of servicing a new user is negligible. These features mean that for efficient operation telecom companies need to have scale – there cannot be too much competition in the telecom market.

Since there will be natural monopolies in telecom provision competition cannot be relied upon for investments in quality. The government thus uses licensing requirements to control entry into the telecom sector. The reason for licensing is to maintain a certain quality of provision by specifying, among other things, technological and quality control requirements. Licensing creates entry barriers into the market and becomes another source of cementing the market power of incumbents.

All of these boring details imply that regulation of the operations of the telecom companies including business decisions such as pricing may also be required. There may be a natural tendency to raise prices towards monopoly levels.

The governance of the services provided through these means is driven by entirely different reasons, like consumer protection and safety or a broader goal like national security. But these services do not require centralized coordination, there is no scarce socially valued resource being used (it is used to provide the means but not the service that sits on top), their market structures tend to be fairly competitive, and licensing will not only raise entry barriers where there are none, but it will also kill innovation and entrench incumbents.

The legacy of telecom derives from a sector where the infrastructure and service—telecommunications—are indistinguishable from each other. But with the growth of the internet and the emergence of OTT services that is no longer the case. An analogy might be drawn here with road infrastructure. Governments play a huge role in the provision of road infrastructure and various government entities, local bodies, public works departments, state governments, and the NHAI are involved in this process. They provide funding, build or get built, regulate operations and other contracting, set quality standards, etc. But these bodies are not involved in setting vehicle safety standards. They just ensure the means of provision of transport services. Any governance of those services is separate.

India already has a regulation regarding services provided by the internet, the Information Technology Act. Incidentally, this Act is also in the process of being revised. OTT services should be governed through those provisions.

Simplifying the purpose of regulation and sticking to it also makes sure that as far as possible regulations are technology-neutral and future-proof. And introduces much-needed regulatory certainty

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