Debating the fairness of fair share

In the recently organized Mobile World Congress, Barcelona, a topic keenly debated was fair share. One could wonder as to why something termed fair should at all be debated. However, here too, like most other places, the root cause of debate is money or rather who should foot the bill. Let us look at the concept from all sides , and if you may, all corners of the debating mat.

The need for telecommunications is now fundamental and ubiquitous, with everywhere, all the time digital connectivity becoming the blood stream of all commerce, all entertainment, all learning, and veritably all human life. As technology evolves to meet the rush of demands, it also reaches higher levels of complexity and hence, higher capital expenses. Digital connectivity, which is the fuel of all modern living, needs heavy fuelling itself. The present debate is regarding the burden of bearing the cost involved.

The concept of a fair share refers to the idea that all parties involved in the telecommunications value chain should contribute to the costs associated with the provision of telecommunications services in a fair and equitable manner.

Value Chain
The telecommunications value chain is comprised of several layers, including service providers, network operators, infrastructure providers, application developers, entertainment providers, business users, and end-users. Each of these layers contributes to the provision of telecommunications services in different ways, and incurs different costs. The fair share concept seeks to ensure that each layer of the value chain contributes to the costs associated with providing these services in a way that reflects the value they receive from the services. The basic idea is that the costs of providing telecommunications services should be distributed in a way that is proportional to the value received by each party. So, the service providers that use the network infrastructure provided by network operators should also contribute to the cost of providing and maintaining that infrastructure in proportion to the amount of network capacity they use. This ensures that the costs associated with providing high-quality services are borne by those who benefit the most from them.

The present arrangement limits the source of revenue to the end-customer of connectivity, not the consumer of connectivity. There is a subtle but significant difference in the two sets as also their capacity to pay, which makes the debate this polarized. Predictably and justifiably, those who would gain in terms of a new bigger source of revenue are in favor and those who would be expected to be the source are resistant.

As seen from the perspective of telecommunication industry, the fair share concept is essential for its sustainability. By ensuring that all parties involved in the value chain contribute to the costs associated with providing telecommunications services, the industry can continue to invest in new technologies and infrastructure, ensuring that high-quality services are available to all users. It also ensures that the end customer is not burdened, beyond the capacity to absorb, with the cost of technology upgradation. Further, the capacity of a sector player to fund technology upgrades is not dependent on existing customer base, thereby enlarging and levelling the playing field. By ensuring that all parties involved in the value chain contribute to the costs associated with providing services, the industry can continue to grow and innovate while ensuring that high-quality services are available to all users.

According to a study report by the International Telecommunication Union (ITU), a 1-percent increase in fixed broadband penetration increases gross domestic product (GDP) in a country by 0.08 percent, while a 1-percent increase in mobile broadband penetration increases GDP by 0.15 percent (ITU 20181). While the economic impact of fixed broadband is greater in more developed countries, mobile broadband benefits are maximized in developing countries, where mobile tends to be the way most people access the internet. This highlights the significant economic importance of the industry, which continues to grow as more people around the world gain access to telecommunication services.

However, as the demand and need for services continues to increase, so do the costs associated with providing those services. For example, the cost of building and maintaining network infrastructure can be significant. According to data from the GSM Association, estimated capital spend by mobile network operators would be USD 890 billion between 2020 and 2025. In addition, the costs associated with providing high-speed broadband internet services can also be significant. The mobile ARPU is less than USD 2, highlighting the significant investment required to provide high-quality internet services to users, and the difficulty of funding it through retail ARPU.

The fair share concept seeks to ensure that these costs are distributed in a way that reflects the value received by each party in the telecommunications value chain. For example, service providers that use the network infrastructure provided by network operators should contribute to the cost of maintaining that infrastructure in proportion to the amount of network capacity they use. Similarly, end-users who consume a large amount of data or require high-speed connectivity should pay more for the services they receive than those who use less data or require slower connectivity. It also seeks to enhance the pool of funders beyond the end customer, thereby crossing the limitations of purchasing power, price elasticity, and need hierarchy. Fair share principle purports to be the vehicle to channelize funds from various quarters, such as OTT players, advertisers, and through them veritably all market. Each and everyone in the market is spending on advertising, and in this day and age most advertising is happening on digital channels involving communication.

The FANG angle
As such, there are many stakeholders involved in the fair share concept debate, each with their own perspectives and interests. One such important segment includes FANG (Facebook, Amazon, Netflix, and Google) and other OTT (over-the-top) companies in the tech industry, which are companies that provide internet-based services, such as video streaming, messaging, and voice calls and who have been keenly involved in the fair share concept debate in the telecommunications industry.

From their perspective, the demand for fair share is not justifiable, and while they contribute to the growth of the telecommunications industry by creating demand for data services, which benefits network operators, they are not responsible for the costs associated with maintaining the network infrastructure that enables their services to function. Instead, they argue that these costs should be borne by network operators, who are responsible for building and maintaining the infrastructure.

That being said, FANG and other tech companies have also recognized the importance of a sustainable and equitable telecommunications industry. For example, Google and Facebook have invested in initiatives to expand internet access to underserved communities and promote digital inclusion, which could help to promote a more equitable distribution of costs within the industry. There are several examples of investments by FANG, OTT, and other allied industry players into telecommunication networks globally, such as Google investments in Google Fiber, (fiber-to-the-home service), and in undersea fiber optic cables, Facebook’s launch of Internet.org initiative, to provide free access to basic internet services in developing countries, as well as in undersea fiber optic cable, Amazon setting up a satellite internet network to provide high-speed internet access to underserved communities around the world, and Netflix launching its own content delivery network (CDN) to deliver its streaming service directly to consumers without relying on third-party network operators. In 2016, Netflix signed an agreement with Comcast, one of the largest network operators in the US, to ensure that its streaming service could operate smoothly on Comcast’s network. Under the agreement, Netflix agreed to pay additional fees to Comcast. This may be the example to quote for the fair share advocates.

As such, tech companies have a separate set of regulations as well as investments to handle and have so far bloomed as a separate industry by themselves and riding on the communication highway. Extending the highway analogy, should a luxury car be charged more toll or say a public bus be charged more since it occupies more space on the highway. Admittedly, it sounds irrational but on the other hand, there are cases where certain types of vehicles are banned from entering stretches of highway thereby creating a discrimination. Cess charges are levied so as to fund infrastructure building and these are on percentage basis, typically. Even within telecom industry, the contribution to USOF is levied on percentage of AGR basis, which is to say a higher amount is levied on those who are earning more. Hence the idea of seeking separate fee/levy/charge/package cost from high-end, bulk users is not an alien concept.

Net neutrality
The debate on fair share has also become entangled with the net neutrality concept, insidiously. The concept of fair share and net neutrality are closely related, but they are not the same thing. Fair share generally refers to the idea that all parties should contribute to the costs of maintaining and upgrading network infrastructure, based on their level of usage or demand. Net neutrality, on the other hand, refers to the principle that all internet traffic should be treated equally, without discrimination or preferential treatment based on its source, type, or destination.

In practice, the fair share concept can sometimes collide with the principle of net neutrality. For example, some network operators and ISPs argue that they should be allowed to charge differential rates for different types of internet traffic, in order to recoup their infrastructure costs and ensure quality of service. They argue that this is a fair way to allocate the costs of network infrastructure, since heavy users of certain types of traffic (such as video streaming) place a greater burden on the network than light users of other types of traffic (such as email).

However, advocates of net neutrality argue that such differential pricing schemes could harm competition and innovation in the online marketplace, by favoring established players and disadvantaging new entrants. They argue that all internet traffic should be treated equally, without discrimination or preferential treatment, in order to promote a level playing field ,and ensure that consumers have access to the content and services they want, when they want it.

Conversations around net neutrality had happened intensely in pre-Covid era and had resulted in the TRAI issued recommendations of 2018, on Net Neutrality and Tariff Discrimination that prohibited ISPs from blocking, throttling, or prioritizing internet traffic, based on content, applications, or services, and also prohibited them from charging differential tariffs for different types of internet traffic. This was to ensure that all online content, applications, and services are treated equally, regardless of their source or type so as to promote competition, innovation, and consumer choice in the online marketplace, and to ensure that internet remains an open and accessible platform for all users. Clubbing the two concepts together essentially robs them of their individual merits for consideration. A nuanced approach is inherently required to be able to understand the debate. India has, for other social issues, adopted the principle of positive discrimination. Extending the same rationale here, while net neutrality guards against negative discrimination, fair share is asking for positive discrimination. All services including the OTT services have a different, higher rate for premium services while the telecom provider is disallowed to levy higher charges for its premium services, or a different bunch of services. Applying another yardstick, telecom service providers are mandated to provide dedicated, exclusive access to disaster management agencies and rescue operations, which is against the principle of uniform level of services to all.

Netflix and other OTT application companies have, understandably, vocally supported net neutrality and would not want internet service providers (ISPs) to charge extra fees for access to their websites or services. In summary, while fair share and net neutrality are related concepts, they can sometimes come into conflict. The challenge for policymakers and regulators is to strike a balance between these two principles, in order to ensure that network infrastructure is adequately funded and maintained, while also promoting competition, innovation, and consumer choice in the online marketplace.

The debate of fair share can be and should be had without the covering cloak of net neutrality. It is a commercial principle, but mixing it with net neutrality and linking it with ideas like freedom to choose and uniform access, brings in a peculiar loftiness to the entire debate.

Retail customer
The perspective of a retail customer is that of acceptance of the inevitable. Death and taxes being the inevitable, no matter in what form. Ultimately, all contributors to the telecommunication industry take their money from the end user. If an advertiser would pay to the OTT who would pay, some proportion, to the TSP, the cost of each of these would add to the package cost to the end customer. Tax or cost of living under different names, is what it is.

Regulatory perspective
The regulatory view on the fair share concept varies among countries, but still there is a growing recognition among regulators around the world that a more equitable distribution of costs is needed to ensure the long-term sustainability and growth of the telecommunications industry. It is also worthwhile to note that there are separate regulators for different industries and just as the telecom regulator is seized of the matters pertaining to telecom sector and would adopt the approach, which is best suited to the needs of this particular sector, other regulators are similarly mandated to focus on the strength and wellbeing of their own sectors.

Finding a solution that satisfies the needs of all stakeholders is a complex challenge, but it is critical for the long-term sustainability and growth of the telecommunications industry, without adversely impacting other industries. It would be interesting to see the perfect balance being achieved between the contrary requirements in this regard. It would be more idyllic if this could be achieved through redistribution of funds among industry players and without dipping into the pockets of the common customer.

This article is authored by Alka Selot Asthana, Executive Director – Telecommunications Consultants India Ltd. Views expressed are personal.