Are the contributions of the Indian telcos being appreciated enough?
- Telecom Service Providers (TSPs) have been the harbingers of India’s digital revolution, transforming the socio-economic landscape by providing ubiquitous and affordable connectivity to the farthest corners of the nation – enabling and empowering the citizens with the power of knowledge and equal access.
- The fact that India has over 860 mn broadband subscribers today and growing
continually, cannot be underplayed.
- This is in spite of being the most heavily taxed sector (~30% paid in taxes/levies) in the country, and the humongous amounts invested in acquiring Spectrum (INR
1.5 lakh crores in the last auctions itself); developing, operating, maintaining and continuously upgrading an expansive countrywide robust digital infrastructure; deployment of networks to far-flung and remote areas; introducing and implementing latest technologies like 5G; bearing license, regulatory and security related costs mandated by the Government.
- TSPs have extended their services to remote and underserved areas where there may not be a strong business case due to the sparse population. For example, in the hilly regions of Himachal Pradesh or the tribal areas of Odisha, telecom companies have set up infrastructure to provide access to people who previously had little to no connectivity.
- Also, consider that fact that in terms of equipment supply, Make in India is yet to mature, while the mandate for trusted sources has led to restricted supply and thereby, increased expenses for the TSPs. Added to the fact that uptake of 5G use cases in enterprises have not yet happened despite the humongous capital expenditure undertaken in spectrum and network deployments, the financial state of TSPs continues to deteriorate.
What is our ask and why?
- While Telcos have been carrying the massive investment burden for deploying networks and delivering connectivity across the country entirely by themselves, OTT players have emerged offering bandwidth heavy services and generating disproportionately high traffic, compelling further upgrades and capacity enhancement of the networks, but contributing nothing to the network expenses.
- The LTG OTTs (a handful of companies generating ~ 81% of the global internet traffic) are majorly owned by large global corporate entities with massive earnings, who earn twin sources of revenues from the consumers as well as advertisers. However, their revenues do not contribute to the Indian economy as it gets carried to their country of origin. COAI believes they need to contribute to this Indian market which has been acknowledged as one of the biggest globally by such OTTs.
- Even in rural areas, where TSPs don’t have viable business cases to roll-out services, OTTs have led to increased demand for data services/bandwidth, with nominal ARPUs not justifying the network expenses incurred to facilitate it.
d. The tariff rates for Indian telecom consumers continue to be among the lowest in the world because the sector is committed to facilitating ‘Digital India’ and fulfilling the “Right to Internet” for all Indian citizens – a fundamental right in today’s age and scenario. We have not raised the required revenues by burdening the end users, as it would defeat the purpose of providing affordable access to all.
- Therefore, in terms of revenue generation, the focus of the TSPs would now be on networks, applications and innovative services – which includes OTTs.
- Support is required for the Telcos in this fast evolving and rapidly converging digital communications technology landscape, where a collaborative effort needs to be made responsibly by all stakeholders involved, to ensure sustainability and advancement of the continued incredible journey of India’s technological growth.
3. What is the rationale and justification for Fair Share contribution from OTTs?
- The telecom sector operates, so far, only in one-sided markets – getting payments from end customers, as is fine for B2C as a well-developed model. However, in terms of B2B, the TSPs are bearing the cost of carrying the humongous amount of content developed and heavily monetised by the large traffic originators or content providers, while being paid nothing for the same.
- In this regard, it is pertinent to note that there are 4 fundamental stakeholders in the market which are Advertisers, Content Creators, TSPs and Consumers who are part of the eco-system for OTT Services. The OTT Service Providers have twin sources of generating their revenue i.e. from Advertisers and Consumers. But the OTT players do not share back anything with the TSPs on whose networks they ride.
- If we draw inferences from other sectors, we will find that the TSPs are facing a significant disadvantage in this B2B area:
- In broadcasting, the Content Providers (CP) who earn from subscription as well as advertising, share a part of their subscription revenues as port charges with the Network Service Providers – who also earn from the subscribers for carrying the service to their homes/devices. E.g., whenever a content provider like ZEE TV charges a subscriber, some amount of money thus collected is shared back with the network provider. Moreover, if the channel is a premium/HD one, a higher charge is imposed on the consumer by the CP, and accordingly a higher port charge is paid by the CP to the Network Provider. For Free-to-Air (FTA) channels which does not require high bandwidth, only basic carriage fees are applicable.
- Going by the above example, when high bandwidth OTT applications carry heavy traffic with high QoS requirements (HD video streaming, downloading, sharing, etc.) a fair and proportionate charge needs to be paid to the Network Provider for facilitating their business. For low bandwidth applications which do not generate much traffic, the general data tariffs may suffice.
- Similarly, in the case of Roadways, passenger/carriage vehicles, which charge the passengers/clients for transporting them or their goods via the roads, pay a toll tax/municipal charges to the road developer. This is because of the wear and tear that the road undergoes for carrying heavy loads, and the regular maintenance and repairs that it necessitates. For national expressways or highways which permit transport of heavy logistics, the toll rate is high and often collected through a BOLT (Build, Operate, Lease and Transfer) model by the road developers. For State Highways, which are developed mostly by municipal bodies and are more suited for lesser loads, the charge for such passenger/carriage vehicles is lesser, but still paid via municipal tax. Village roads, which are ideal for even less capacity vehicles, are also entitled to some municipal tax for development and upkeep.
- Drawing from the above analogy, high bandwidth OTTs, like the heavy load passenger/carriage vehicles, must also be required to pay a share of their revenues with the Network Providers who provide optimized networks for their enhanced requirements, akin to a Highway/Expressway Road developer. For smaller OTTs which do not generate much traffic or lead to high/frequent maintenance/upgradation, similar to smaller vehicles which do not put much load on the roads or create much wear & tear, the charges could be much lesser. OTTs categorized as Startups or MSMEs, whose traffic generation could be compared to the most lightweight vehicles like cycle rickshaws on the roads, may not need to pay any charge at all.
- Going by the above examples, in the B2B scenario, a 2-sided market is a prevalent and logical practice and therefore, it would be just to be practiced by TSPs for OTTs through the fair share methodology to bring about a parity between the two parties.
- It is also a well-known fact that any entity which creates a property or infrastructure is entitled to take usage charges from the one using the particular property or infrastructure for commercial purposes. Thus, any traffic generated by OTTs and carried by TSPs on their network should be liable to pay fair share charge.
- Despite this established fact, due to bargaining asymmetry and market power of LTGs, the TSPs cannot get these LTGs to pay for the very infrastructure created by them. To make the LTGs pay, there is a dire need for a framework that will bring LTGs under the onus of paying Fair share charge to the TSPs.
- Thus, there is a need for the Government to provide a legal framework which ensures that large traffic generators pay a fair and proportionate share to MNOs for the services provided by them, to incentivize them to deliver the traffic in a more efficient way and to ensure economic sustainability of network deployments.
- ICRIER – one of India’s premier Economic Think Tanks and Research Institute, has asserted the need for OTTs to contribute towards the network costs of the telcos, stating that OTT service providers cannot continue to ‘ride for free’.
4. What would be the benefits of our proposal on Fair Share contribution from OTTs?
- If Large Traffic Generator (LTG) OTTs pay to TSPs, consumers will be the winners as they will reap the benefits of OTT content – since the last mile coverage can be enhanced by the TSPs from the revenue generated – covering both USOF and commercial areas, besides enhancing connectivity quality and reach.
- Keeping in mind that a supportive framework needs to be provided to nurture startups, MSMEs and small enterprises in the OTT ecosystem, COAI has also proposed that such smaller players with low usage need NOT be required to pay the usage charge. In this way, innovation and entrepreneurship would not get affected.