TRAI OTT Consultation Paper: Rethinking Traditional Regulatory Regimes To Deal With Innovation

This is a two-part series discussing the issues raised in TRAI’s 2018 Consultation Paper on Over-The-Top Services, which seeks views on the imposition of regulatory norms on par with telecom service providers on over-the-top services. Part I of the series argued that OTT services are not responsible for the drop in telecom service providers’ (TSP) revenues, and the real reasons need to be identified and addressed. In Part II, we suggest some specific steps which the government can take to support the TSPs, as well as solutions for regulating OTT services.

The realisation of the vision of Digital India needs not only governmental support in the form of tax incentives, regulatory sandboxes, access to risk capital, etc., but also an overhaul of traditional licensing and regulatory regimes which can hold back progress. One such regulatory system that is in need of an overhaul is the telecom system. This is currently the subject of a debate brought forth by a second consultation paper by TRAI on the regulation of OTT services. The issue at hand is on whether OTT communication services like WhatsApp and Skype should be subject to the same regulatory requirements as the telecom service providers.

The previous part of this series argued that the competing OTT services are not the cause of the drop in the TSPs’ revenue. The reasons instead are the lack of timely adaption to new technologies such as VoLTE by the TSPs and the lack of a supportive regulatory regime provided by the government.

One area where the government can play a role in supporting TSPs is in relation to spectrum availability and charges. Spectrums refer to the range of electromagnetic or radio waves, which are used to transmit sound and data services from one device to another. Telecom spectrum ranges between 800 MHz and goes up to 2300 MHz.

These spectrums are available to the TSPs at a huge cost, and in fact, the price of Indian spectrums is said to be among the highest in the world. Further, as per the IAMAI’s response to the 2015 OTT Paper, the International Telecommunication Union reports that 60 percent of the spectrum in India remains unallocated.

As per the IAMAI response, this restriction on the release of the spectrum and the high cost per MHz is what leads to the huge licensing fees for the TSPs. Telcos are, in fact, required to pay 5 percent of their adjusted gross revenues as a part of the license fee. A crucial issue faced by TSPs in increasing their revenues, thus, is not the ‘cannibalisation’ of revenues by OTT services as argued by the TSPs, but the heavy costs imposed by the government on them.

Providing regulatory support through addressing these issues is crucial to enable the TSPs to adapt to data-based services and new age technologies. It is only recently that reports have arisen of the aim to align spectrum prices in India with the rest of the world, in order to speed up deployments of fast mobile 5G broadband networks in the country.

Regulating TSPs as an essential public utility service

In addition to the bearing of the huge costs for the underlying infrastructure, the licensing fees and the spectrum charges, TSPs, as mentioned in Part I, are subjected to a number of regulatory obligations. These include requirements such as fulfilling quality of service parameters, interconnection requirements, privacy and security obligations, providing emergency services, enabling caller identification and mobile number portability, dealing with unsolicited customer communication, and so on.

These requirements are imposed largely because the TSP’s communication services form an essential public utility service. The requirement of such regulation is a crucial factor in ensuring that the public has reliable and good quality access to such an essential service.

Experiences with adapting regulatory frameworks for aggregators

Whether OTT services like WhatsApp are also equally an essential public utility service is an important question that needs to be addressed. The disruptive nature of technology raises many such questions, particularly on whether equally stringent regulations must apply. A parallel example that can immediately be drawn is with the regulation of taxi aggregators.

Here as well, the taxi aggregators like Uber circumvented the highly regulated taxi system to introduce their service via an app. The existing traditional taxi services around the world, such as the ‘kaali peelis’ in India, naturally, objected to this, since their own activities were highly regulated, such as fixed tariffs and minimum fleet sizes.

The new age taxi aggregators did lead to the need for new regulations, such as Karnataka’s On-Demand Transportation Technology Aggregators Rules, 2016 in India. In the case of taxi aggregators, however, these were fundamentally a taxi service which was using technology to a greater extent. This allowed the government, in many cases, to simply require the aggregators to register under existing taxi laws, such as under Delhi’s Radio Taxi Scheme, 2006.

The situation with OTT based communication services can be differentiated in this respect. While the service is fundamentally the same as that of the TSPs traditional voice and messaging services, there is a major difference in the way the service is delivered. The first is through IP based networks, while the second is through packet switched networks. The TSP’s services, in fact, are now also being switched to IP based networks, in other words, traditional voice services are now also being provided as an application enabled via the internet (explained in Part I).

This is thus, a different case where the existing traditional service itself is undergoing changes to adapt to a new system or technology. Further, the new system requires the network (the underlying internet) and service (the application provided via the internet) layers to be separated (explained in Part I), which also requires a change in applicable laws.

Overhauling traditional regimes to regulate disruptive technologies

To deal with this situation, therefore, applying traditional regulations to the new service will not do, particularly since the traditional service itself is undergoing a significant change. Instead, the traditional regulatory system itself needs to be overhauled. One form this can take is to create new laws of the following broad types. The first are general rules that apply to all services, businesses and other activities enabled via the internet. A good example of this is the forthcoming data protection law, which will take care of the privacy and security obligations for any service or business. Such a law will take care of these requirements in relation to any OTT service. The Information Technology Act, 2000 is another such law.

The second will be the fundamental law required for the underlying infrastructure required by all such services — the internet. In separating the regulations for the network and service layers, this law will deal with the requirements in relation to the network layer. This may include, for example, rules in relation to spectrum, as discussed previously. Care must be taken to ensure that the system enabled by the government is a supportive one. Revenues for the TSPs will be enabled through the data services enabled, and not through the service layer.

Looking at optional regulations or essential service certifications

The next set of laws will take the form of sector-specific regulations, which will apply to the service layer. These laws need to be tailored to the needs of that particular sector. One example is that for taxi aggregators as one form of a service. Another would be with communication services.

A law for such a service may firstly lay down the basic requirement, if required and as identified and agreed upon by various stakeholders, to apply across all communication services.

In addition to these, communication services can be given the option to register or certify as an essential communication service. To such an essential service, the requirements and obligations would be higher and may include essential requirements such as quality of service, emergency calls, unsolicited communication requirements, and so on.

Making it optional will not hamper innovation, allowing OTT players to choose which system would be most suitable for them, while simultaneously enabling a reliable essential service to be available to the public. Registering as an essential service can also be incentivised by the government.

Ancillary services and the role of market forces

Such an optional system further gives the flexibility for OTT services which provide communication as an ancillary service, such as by e-commerce companies (buyer-seller communications), social media companies (chat), or others like Google Docs, to allow such a function without being subjected to the restrictions of a regulation.

The OTT sector, further, given its huge scope, witnesses intense competition. Market forces may thus also play a key role in encouraging services to register as an essential service, or alternatively to provide a service of a level where it is usable as an essential service.

Consider, for instance, the increasing use of WhatsApp for businesses. This allows the delivery of many communications via an OTT service like WhatsApp, such as the delivery of financial communications, business documents, e-tickets, confidential communications and even legal notices. There is likely to be a huge requirement in the future for a reliable communication service, and this can encourage the provision of communication as an essential service.

Establishing QoS and pricing requirements

It may also be considered to what extent certain other factors can be left to market forces or if they require regulation. For instance, quality of service is one such parameter, and this is suggested by TRAI itself in its 2017 Recommendations on Internet Telephony. Another factor is the pricing or charges put to consumers by the application itself. A case to consider is the surge pricing in use by taxi aggregators, which when left unregulated, led to enormous surges during peak hours and emergencies. Regulation kept surge pricing under control in some jurisdictions.

Anonymity in OTT communications

Another issue raised by stakeholders like Reliance Jio in previous consultation papers was on the anonymity enabled by certain apps. An example, for instance, is of calling apps like Voxox which not only enabled anonymous calls and call masking but also enabled assuming the identity of another caller.

In the Internet Telephony Recommendations made last year, for instance, TRAI had recommended that the Public IP address used for originating/terminating Internet Telephony calls should be made a mandatory part of Call Data Records in case of Internet Telephony. The storage of location details in the form of latitudes and longitudes were also required. Such alternatives need to be evaluated as a part of the proposed regulations. It must be noted here, however, that no amount of regulation can prevent the creation of such apps since such apps would simply continue to be available but as illegal apps.

Application of traditional regulations to OTT services will only result in creating entry barriers for OTT services and will hamper innovation in the field. Further, it may lead to a violation of net neutrality principles by enabling double dipping, or the charging of a consumer twice for the use of the same data.

The imposition of requirements in the form as discussed here, however, will be with the view of ensuring a basic and quality service, and not in relation to requiring OTT services to ‘participate in infusing investments in the development of telecom networks’.  The revenues of TSPs, further, will continue to rise in the form of data services, as opposed to the dying source of traditional voice revenues.

There are thus other options available, which need to be explored in order to resolve the issues of the TSPs and OTT services. The TRAI paper on OTT services needs to generate this discussion on the most appropriate way to regulate OTT services in the digital age.

TRAI has been taking several positive steps, especially in relation to net neutrality, first through the issue of the Discriminatory Tariff Regulations and secondly through the issue of its Recommendations on Net Neutrality. Hopefully, it will continue with this trend and make the necessary changes to support both the TSPs and the OTT services in the provision of services to the people. – firstpost