tl;dr
Demands for the regulation of Over-The-Top (“OTT”) communication services (such as WhatsApp and Telegram) have been increasing amongst telecommunications service providers (“TSPs”) globally for several years. These demands have been justified by stating that similar rules must be applied for offering similar services (for eg. voice calling or messaging) by different service providers. This “same service, same rules” argument has been raised by traditional TSPs on the grounds of introducing a “level playing field” among all technologies. To add to this demand, TSPs have also begun demanding their “fair share” from OTT content providers (such as Netflix and Hotstar), stating that their capital investment in developing infrastructure and technology for telecommunication services lend to the generation of traffic to OTT content providers. We trace these arguments in the Indian and international context in our public brief, in an effort to analyse the necessity of such regulation; we then update our previous analysis from 2018 examining whether the growth in the use of online calling and messaging negatively impacts telecom revenues in India in 2023.
Background:
On November 12, 2018, the Telecom Regulatory Authority of India (“TRAI”) released a consultation paper (“2018 TRAI paper”) with the objective of focussing “only on regulatory issues and economic concerns pertaining to such OTT services as can be regarded the same or similar to the services provided by TSPs.” The paper had two principal objectives. The first was to make sure that there was a continued economic investment in telecom and data networks in India. The second was to cure any regulatory imbalance which may exist between telecom services and their internet based counterparts (and if they can be considered as substitutes).
In December 2018, we published an analysis to examine whether a growth in the use of online calling and messaging did in fact negatively impact telecom revenues in India. This was prompted by both the 2018 TRAI paper and the longstanding sentiment amongst telcos that they suffer revenue losses due to their profits being stolen from OTT communication services. This argument has been accompanied recently with a demand for levying some form of a toll to "compensate" telcos for their losses.
In our analysis, we found that the economic stress on telcos comes from the intense price competition they face due to the extremely low prices of their competitors. There was also no clear data on the extent to which investment was needed in the sector. Based on this analysis, we concluded that to pose regulation for OTT communication services in the absence of even a credible correlation to economic losses of telecom companies - let alone causation - was a harmful public policy choice. As part of our comments dated January 07, 2019, and counter comments dated January 21, 2020 on the 2018 TRAI paper, we urged TRAI to prioritise user interests and choices, over telcos and platforms. Amongst other submissions, we also suggested that TRAI must conduct a specific consultation on interception and surveillance reform in the telecom sector.
Other arguments around “fair share”
Our current brief enumerates a timeline tracking papers and comments from TRAI on the ‘same service, same rules’ argument as well as the recently emerging demand from telcos for OTT content providers to contribute their ‘fair share’ towards infrastructure costs in India. Additionally, more recent perspectives on the argument from international and legislative sources have also been analysed. For example, both the Indian Telecommunication Bill, 2022 (“Telecom Bill, 2022”) and TRAI’s consultation paper on the “Convergence of carriage of Broadcasting and Telecommunication services” (released in January 2023), initiate conversations about the regulation of online services and bringing them under a common regulatory framework with telcos.
As we elaborated upon in our Public Brief on the Telecom Bill, 2022, the arguments for substitutability of services between telcos and OTT communication services are unfounded. There are inherent structural differences between the two, the primary one being that OTT communication service providers are essentially internet-based apps, which don't own or operate telegraph equipment. Further, OTT communication services do not enjoy the exclusive permissions enjoyed by telcos - such as the ability to obtain numbering resources, a right of way to set up Infrastructure, etc. Moreover, OTT communication services make huge investments in telecom infrastructure and networks, are significant revenue generators for telcos, and create demand for broadband services.
Globally, also, the argument that OTT content providers have eaten into the profits of the telcos has been gaining momentum. Large telcos have asked for their “fair share” or adequate compensation from OTT content providers for the capital investment made by the former in internet infrastructure. This conversation has been particularly active in Europe since 2022, after the publication of the European Declaration on Digital Rights and Principles. Upon receiving concerns around infringement of net neutrality principles, the European Commission clarified, in a public letter, that their approach to the fair contribution debate is in “full respect of EU net neutrality rules.”
The European Union in its consultation on the future of the electronic communications sector, held between February and May 2023, has further acknowledged both the perspective of telcos and digital content providers, highlighting that other stakeholders caution against rushed regulatory intervention. OTT content providers argue within this consultation that apart from concerns surrounding net neutrality, costs borne by OTT content providers are not necessarily traffic-sensitive, rendering the payments on the basis of the number of users or amount of traffic transmitted unjustified. Moreover, the Dutch government has argued that the profit margin of EU telcos have improved significantly in the last decade, and protecting large telcos therefore should not be a goal in itself, especially over the interests of consumers and businesses.
Economic analysis of telecom revenue
In a follow up to the preliminary analysis included in our December 2018 paper, where we used a data sheet broken across quarters, we updated our analysis using data most recently available - ie, till 22Q3. Our brief finds a continuation in many of the trends noticed in 2018.
In our previous analysis, we noted that numbers in the industry change drastically after the entry of Jio. As predicted, with the merger of Vodafone and Idea, the industry has seen a uniform increase (quarter-on-quarter, from 18Q3) in revenue, also evident from the pan-industry data available with TRAI (embed Figure 1).
In our current analysis, we find that this increase has a positive relationship with changes in voice and data usage across the sector - ie, usage of both services has also been on the rise, especially since the entry of Jio in the market, and only exacerbated with the consolidation of Vodafone-Idea (embed Figures 2 and 3).
Another metric to measure the health of telcos is EBITDA, which provides insight into a company’s operating performance. As with the other variables, our previous analysis noted a change in 16Q2 with the entry of Jio. However, general EBITDA trends showed a quarter-on-quarter fall in the earnings of the telcos until 18Q3 (embed Figure 5). While limited data exists on sector-wide EBITDA, Airtel, Jio, and Vodafone-Idea all show growth in EBITDA between 18Q3 and 22Q3.
Conclusion
What the data thus implies is that an increase in data use - and therefore the services accessed using such data - cannot be blamed for decreasing or negatively affected revenue streams. Although major telecom companies tend to attribute various factors to this decline, intense competition remains most likely to be the main cause. It is our initial belief that implementing regulations that impose financial burdens or levies on OTT service providers is not a wise public policy approach in terms of data. For example, requiring OTT service providers to contribute to the infrastructure costs incurred by telcos may result in higher prices for consumers. Rather than protecting company profits, the goal of regulation should be to serve the public's best interests.
This post has been authored by Policy Intern Ishika Ray Chaudhuri and reviewed by the IFF Policy Team.
Important Documents
- IFF's Public Brief on Demand for “Fair Share” and Regulation of OTT services by Telcos and Implications on Users (link)
- Our analysis on the impact of the growth in the usage of online services on telecom revenues, December 2018 (link).
- IFF’s Public Brief on the Indian Telecommunication Bill, 2022 (link).
- TRAI’s consultation paper, November 2018 (link).
- IFF’s comments and submissions on TRAI’s 2018 consultation paper (link).
- IFF’s counter-comments on the TRAI 2018 consultation paper (link).