And it happened!
Whatsapp made its voice calling facility available in India for Android users. Indian customers are elated. Now they can make ‘free’ calls to fellow WhatsApp users across the globe, over the internet. Of course, they are not free. Net data usage is charged. Nevertheless, people are busy updating their WhatsApp versions to accommodate this new feature and ‘try’ this latest ‘cool thing’ from the stable of social networks.
Odd enough, this event coincided with the month long telecom spectrum auctions in the country. Indian telecom companies (through competitive bidding, unlike the infamous 2G allocations) bought the communication spectrum licenses from the union government. Leading telecom players spent approximately 1 lakh Crore Rupees to have access to the frequency bands.
WhatsApp, the California based messaging app giant, was acquired by Facebook for $19 billion in February 2014. Latest estimates (March 2015) put its global user count at 700 million. Of these, an estimated 10% are from India. That is a whopping 70 million. It is no wonder that WhatsApp did not charge Indians any subscription fee, unlike in the US where they charge 1$ annually. Of the 1.3 billion global users of Facebook, about 110 million are from India. So, for internet companies, India is real big fish, even bigger than the United States.
These OTT (Over The Top) service providers like WhatsApp are all set to give very serious heartburn for the conventional telecom companies of India. Bharti Airtel, India’s biggest telecom company was the first one to sense danger. Last year they tried to charge the internet voice calls (using Skype and Viber) separately in their data services. But they had to roll back that decision within few days due to widespread angry reaction from the customers. Social media was flooded with hate Airtel campaigns. The concept of ‘Net Neutrality’ was widely debated then. Activists rigorously campaigned for the right to equal access of all internet services. Bharati Airtel bucked under pressure. However, for internet rights campaigners, that victory is not final.
Today, the telecom regulator of this country, TRAI (Telecom Regulatory Authority of India), is in consultation with various stakeholders of the industry and general public. Aim? To formalise a framework for internet regulations in India. Should the internet be regulated? This is what TRAI asks when it invites suggestions from the public in a consultation paper published on March 27th, on this issue. The suggestions are open till April 24th and counter comments can be posted till May 8th. After that, TRAI and Ministry of Telecom will take a call whether to allow OTT services to have a free run or not.
Thus, a curious case is going on in the policy circles of India’s information and communication sector. This has the potential to alter and reshape the very future of telephone and internet usage in this country. Remember, this is extremely significant. Because, India has ambitious plans to go fully digital in the next few years.
What is Net Neutrality?
Net Neutrality (NN) is a broad concept which intends to keep the internet a free and open platform. In theory, it strives to enable competition and innovation while protecting users’ interests. A neutral internet must allow EQUAL access to ALL sites, and they all must be accessible at the same speed.
There shouldn’t be any selective support or promotion of any site or app, by the service provider. Most importantly, the cost for accessing these sites (or apps) must be uniform. That means, data must be charged identically without any preference or prejudice by the operator.
In a nutshell – NN is about uniform access, speed and cost to all sites throughout the internet.
Well, this is an ideal concept. Yet, real life and businesses aren’t that ideal. All these years internet was conceptualized and developed by an extremely egalitarian notion that it is same and equal for all. In our lives, it has become too ubiquitous too. In an increasingly interconnected modern world, governments are debating whether the internet can be regulated or not. If yes, how the framework for a regulated internet can be molded such that, businesses that are dependent on it can be sustained, in the long run. That is the million dollar question.
World over, debates are going on regarding the control of internet. Chile and Denmark are the only countries where clear laws are introduced, as of today.
Telecom in India :
Today India has three to four large telecommunication players operating in all the circles. In a way, the telecom business in the country is consolidated. However, for the industry, this journey had been extremely bumpy, especially in the last few years. At present, most of the telecom companies (henceforth telcos) are in red. Their once deep pockets have developed holes after the spectrum shopping. The huge negative image from the 2G scam still looms large. Legal battles regarding taxation issues, couple of joint ventures not getting profitable – life had been tough and tumultuous for the once sunrise industry of India. Of course, they rode on an unprecedented Asian telecom boom of early 21st century and got really big. But, just because they are big today, can we ignore their real woes? Big need not always mean bad.
Of course, there are customers in India who are not happy with their services – frequent call drops, hidden charges, dubious plans, unsolicited marketing, poor grievance redressal – you name it, every glitch and crook of service can be spotted in India’s telcos and their operations. Of course, it is not just the case of any Airtel or Reliance in India. Every other big operator including the public ones face such allegations. May be, in this business, rotten fruits are everywhere, all across the globe. By the way, are India’s other sectors so very ethical and clean? Indian Telecom companies operate within India’s system. Unless systemic problems of corruption and nepotism are weeded out, such problems will remain, in one form or other. Any expectation otherwise could be superficial. Let us be realistic there.
This is not my attempt to whitewash these telecom giants. I simply wish to make the point that such complaints are inevitable in any network serving such a vast geography. In an evolving market which grew at a breathtaking speed, today’s leading telecom companies of India consolidated their empires by rigorous capital expansions, while building decent customer base. With an option for Mobile Number Portability (MNP) available, today’s customers can easily switch their loyalties. Hence, the telecom companies need to carefully gauge their business options. Brick by brick, they have built their infrastructure, from scratch. In developing market like ours, certain policies could only be evolved by means of reactionary measures. This takes time and serious mediation from policy makers. Because, challenges here are fresh and unique.
Today, there are some legitimate complaints from those telcos about the business environment that they operate in. They allege that OTT services which run on the very networks provided by them are quickly eating into their revenue pie. If this scenario is to continue, they believe that they would soon get redundant. Is this not true?
If we allow market’s wisdom to decide the pricing, we must be adhering to that in its letter and spirit, right? When Reliance allowed unlimited access to social networking sites (including Facebook) people were just happy. Facebook? For free? Um, that’s good! But, the tie up (preferential treatment) between corporates was quite evident in that move. However, when Airtel intended to charge the internet voice calls separately, all hell loose broke. Suddenly questions about human rights and freedom sprang up. Well, that is all good. At least public and policy makers will now seriously think over those serious challenges by the OTT services and the unsustainable business models associated with them.
What are OTT Services?
The term Over-The-Top (OTT) refers to those applications and services which are accessible over the internet. They don’t have own networks to reach the users. But they ride on TSPs’ (Telecom Service Providers) infrastructure while offering various services. Social networks, search engines, amateur video aggregation sites, e-retail platforms – they all are examples of OTT services.
Messengers like Skype, Viber, WhatsApp, Snapchat, Instagram, Kik, Google Talk, Hike, Line, WeChat, Tango, Facebook messenger, Black Berry Messenger, iMessage etc. are all OTT services. Even, e-commerce sites like Amazon, Flipkart, Snapdeal, Alibaba etc. work on the same model. Online video games and movies like Netflix, Pandora can be counted too. Users can simply access them from an internet connected device and avail their services.
Well, that is good right? Who has the problem here?
Problem is for the TSPs.
The TSPs get revenue ONLY from the data usage for these OTT services. For carriage or bandwidth they don’t realise any revenue. They are also not involved in planning, selling, or enabling OTT apps. On the other hand, OTT providers make use of the TSPs’ infrastructure to reach their customers and offer products/services that not only make money for them but also compete with the traditional services offered by TSPs. That is the crux of the problem. Leave aside TSPs, these OTT apps also compete with brick and mortar rivals in retail and banking.
Reasons for rapid growth of OTT services:
Last few years witnessed tremendous growth of OTT services. Most important reason is the high market penetration of smart phones and rapid up gradation of access networks. Suddenly, OTT services have become a significant chunk of the internet.
Simultaneously, rapid computerization of banking system boosted the OTT service growth. The number of internet transactions grew. This made OTT services independent of TSPs. Today, the content provider (or the app maker) can directly bill the user without any TSP interference. This revolutionized OTT services.
When OTT communication services grew, they started competing with the very same TSPs’ that provided them their infrastructure. Now, TSPs’ own proprietary services are in stake.
Of course, OTT applications provide revenue to TSPs by means of data usage. However, new internet companies which operated on very different business models (like Google and Amazon) took advantage of rapid technology changes. Through innovation they rigorously expanded their businesses and smartly diversified their reach. Their income was mostly through advertising and they offered services totally free or way cheaper than traditional models.
At the same time, TSPs have invested hundreds of crores of rupees to build the massive infrastructure for their own services. Now that they share this infrastructure for OTTs, how fair is it to ask them to remain merely as pipelines for this information flow? That is against the very free spirit of the market. They are not any charity. They need to run their businesses too. The TSPs cannot be blamed if they try to make their businesses sustainable. This is just common sense.
Moreover, when internet penetration is increased, more and more users will be connected to the network. Then the TSPs’ network will be under tremendous strain. They will have to constantly upgrade their infrastructure and the costs for them will not be born by the government or the OTT data providers. If the TSPs’ conventional businesses are failing, they will not have sufficient funds to invest for infrastructure upgrades. Hence, this model of OTT business that sucks the TSPs’ blood is not sustainable in the long run.
With the inherent egalitarian tone of it, the arguments for a rights based Neutral Net are very appealing. However, one must admit the hypocrisy in such arguments which conveniently let free run for few large companies in the name of information flow. Just because Facebook or WhatsApp were all tiny start ups some years back or the fact that they innovated smartly, these anomalies cannot be justified. The present situation can only lead to newer monopolies. Corporations like Google and Facebook have already monopolised the digital world. Who knows whether these feverish online campaigns are covert plans funded by the same OTT providers themselves or not?
Comparison of revenue – Traditional telecom Vs Data :
One needs to carefully compare the revenue from data and conventional services to understand their real concern of TSPs.
For one minute of traditional voice usage, the revenue earned by the TSP is 50p, on an average. Where as, data revenue for a TSP from a minute of VoIP usage is merely 4p. That is a huge difference.
On an average, revenue earned through data by TSPs is around 25p /MB of data and the average size of a one minute VoIP call is around 150 KB.
This is where OTT apps really flourished. From a user’s point of view, the low cost helped her to have longer conversations in VoIP calls compared to traditional telecom calls. Thus average holding time in VoIP calls improved a lot. And with more sophisticated coding techniques, the amount of data consumed will further come down in the future. This is not to say that the fruits of technological growth should not reach the common end user. But the business models supporting them must be sustainable. Else the system will break down. Otherwise we shall completely overhaul the system. Justice cannot be one sided.
Similar is the case with SMS services. For a TSP, average revenue from a SMS is around 16p. But it is just 1p from the data used for an OTT message. On an average, revenue earned through data by TSPs is around 25p /MB and the average size of one message is 30 KB. For the user, OTT service will always be more appealing with its rich interfaces and wide variety of options. At times, with the OTT, real time data can be sent, as well.
From a TSP’s point of view, these are all real bad business. How can one blame them, if they try to reverse this?
Guidelines for Telecom industry in India:
TRAI guidelines for UAS (Uniform Access Service) licenses promote net neutrality. But it does not enforce it. IT Act 2000 does not prohibit companies from any preferential treatment. In India, telecom companies and ISPs offering VOIP services have to pay a part of their revenues to the government.
In 2006, TRAI invited suggestions about net neutrality from various telecom stakeholders. In December 2006, a consultation paper was published by TRAI. It noted that even though the internet had been neutral since 1998, the situation might change in the future. Internet Service Providers may discriminate against competing applications and content providers. This may affect services like internet telephony. That paper had invited opinions from stakeholders on whether regulatory intervention was required or whether it should be left to market forces. However, no concrete policy decision was taken about any regulatory framework.
The curious case of Airtel :
In the 2012 World Mobile Congress held in Spain, Sunil Mittal (CEO of Bharti Airtel) suggested that services like YouTube should pay an interconnect charge to network operators. He said that if telecom operators are building and operating highways for data then there should be a tax to use the highway.
In the same year, Airtel’s Network Services Director, Jagbir Singh suggested that large internet companies like Facebook and Google should share revenues with telecom companies. According to him, internet companies were making big profits from small investments, whereas the telecom companies were actually investing in building networks. He also suggested that the telecom regulator should establish interconnection charges for data services, similar to those applied to voice calls.
In August 2012, TheHindu reported that according to data from M-Lab, certain operators including Airtel and BSNL were deliberately throttling peer to peer traffic. This was a serious allegation.
In 2013, Killi Kruparani, the then Union Minister of State for Communications and Information Technology, said that the government would review the legality of VoIP services. The Chief General Manager of the state-run BSNL, V. Srinivasan also said that VoIP services like Skype are illegal.
In June 2013, Airtel offered certain Google services for free to its cellular broadband users, with a limit of 1GB on the free data. In February 2014, Gopal Vittal, Airtel India’s CEO, said that companies offering free messaging apps like Skype, Line and WhatsApp should be regulated similar to telecom operators.
Telecom companies were lobbying hard to make OTT service providers share their revenue with them. However, in August 2014, TRAI rejected such proposals.
In October 2014, Vodafone India CEO Marten Pieters echoed Airtel bosses’ opinions. He publicly suggested that companies like Facebook and WhatsApp should be taxed to ensure a level playing field with telecom operators.
In November 2014, there were allegations that Airtel and Reliance offered special packs which provided preferential access to WhatsApp and Facebook. TRAI began investigating.
In December 2014, Airtel changed its service terms so that VoIP data was excluded from free data. Customers literally took arms against the company and declared online war. However, TRAI chief Rahul Khullar said that Airtel cannot be held responsible for violating net neutrality because India has no regulation that demands net neutrality. Facing stiff resistance from social media critics, on 29 December 2014, Airtel cancelled the planned changes.
What are the problems with OTTs?
Under the present Indian Telecom framework, voice and messaging services can be offered to the public only after obtaining a license.
Internet Telephony is a licensed service permitted only under the UAS (Unified Access Service) License granted under Indian Telegraph Act 1885. Hence, according to the Cable Operators Association of India (COAI), companies offering OTT voice services, without holding a telecom license in India, circumvent Indian licensing provisions and provide services that are otherwise permitted only under a telecom license.
The licensed TSPs need to pay various regulatory fees like Entry Fee, License Fee and Spectrum Usage Charges. They are also subjected to stringent Quality of Service Regulations, Tariff Regulations and, Consumer Protection Regulations. They need to ensure emergency services and confidentiality of customers too. Moreover, they need to undergo regular audits and ensure proper lawful monitoring and interception.
However, none of these provisions are applicable to OTT providers. This help them to offer Internet Telephony pretty cheap. And when they compete with traditional players in voice call market, that competition is totally unfair. It is unfortunate that there is no policy framework to regulate these affairs.
When consumers migrate to OTT telephony en-mass, licensed operators and thus the government are deprived of legitimate revenues. This can result in serious revenue dips to TSPs and their capital expansion capability will be lost in the future. That can seriously handicap the country’s Digital Project ambitions.
It is true that data usage has increased due to OTT services, but whether this increased usage is sufficient for TSPs to make up for their loss in traditional revenue or not is debatable. When technology develops, services will consume lesser data, hence TSPs will find it harder to sustain.
OTT providers can be physically located anywhere in the world. Most of their servers are in Europe or North America. As they are not located in this country, India has no real macroeconomic benefits from them. End users are purchasing goods and services from global players rather than local entities. For the government, there will be nil tax revenues from these operations. Not much of employment benefits can be seen from these business models and spillover effects to other sectors are limited too.
For most OTT players advertisement is the main source of revenue, not the sale of their services. Their global exposure and technological expertise provide them with a diverse user base. Such business models are actively funded and supported by multinational corporates with long term business plans. They can easily afford huge investments for building technical stronghold and customer goodwill in emerging markets like India, even when they are not making any direct profits, presently.
Universal Service Obligation Fund (USOF) for the government is a percentage of the revenues earned by the TSPs. Dip in TSP revenues will substantially reduce the funds flowing to USOF.
It is an acknowledged fact that US intelligence agencies in connivance with internet companies based on US shores access confidential customer data. In the recent past, they have even snooped into the classified communications of state heads and senior public servants which led to serious diplomatic standoffs.
It is hard to know what an OTT app is actually doing in the background and what information is being collected from the naive users. One must recollect the advisory from Indian Navy to its staff and their families not to use mobile phones from a particular Chinese manufacturer for fear of data leak and security breach. Technological advancements have made national security really challenging and complicated. Widespread usage of OTT services by the populace without any regulation further complicates this fragile situation.
Today, in the world of Big Data Analytics personal information so extracted can be used for customised marketing. This has the potential to severely compromise users’ privacy. In India, individual privacy is not a major concern, yet. It is unfortunate that it has not become a serious matter of policy discourses. OTT services are neither officially registered nor transparently monitored by any competent authority. This situation is really bizarre. OTT services must be held accountable for any breach of confidentiality terms.
Today, India is the second-largest wireless market in the world after China. It has the second-largest Internet user base too. We have close to 970 million phone users, of which over 95% are mobile. Of them, about 22% have smartphones. This is a huge number and this number is very rapidly increasing. OTT service providers thrive on this gargantuan growth. At the same time, India has more than 80 million broadband connections. They serve close to 300 million internet users, of which about 190 million access the net on their mobiles. At present, Indian mobile market is largely voice driven. Data revenue accounts for less than 20% of total mobile revenue. But this situation will change soon. Data flow is going to be the key driver of the Indian mobile market in near future. We need wise policy frameworks to assist this changeover.
Net neutrality is a charming, lofty concept. I too pledge my support to internet freedom and equality. Yet, such a neutrality should not be realised through unsustainable business models. It can only result in digital monopolies by a handful of over the top service makers. Until transparent regulations are developed and a level playing field is set let us not equate all this with questions of freedom of speech or liberty. Even if it takes some serious time, a balanced framework has to be formed within which the internet businesses can function. Let us not be myopic, this is not just about customers’ right to make cheaper calls over Whatsapp or Skype. The bigger picture has to be realised by all the stakeholders including end users. Anyway, the outcome of TRAI consultation will have serious ramifications for the future of internet usage in India.
Let us hope for the best!
Courtesy : The consultation paper on Regulatory Framework for Over the Top Services by TRAI, dated 27th March 2015. It can be accessed here.