[This is the first part of a two-part post authored by Abhilash Roy and Hrishikesh Bhise, fourth-year students at the National Law Institute University, Bhopal. Click here for Part II ]
The purposes and functions of the internet, as we know it today, have grown manifolds since its inception over thirty years ago. Its importance and use has only grown due to the ongoing pandemic with an estimated 50 to 70% more hits.
With this surge, over-the-top (“OTT”) services and applications catering to communications, media, commerce, social media and web content have become the norm. Such services include popular applications and websites such as WhatsApp, Instagram, Google, Amazon, Netflix and more.
These offer the convenience of on-demand content in comfort of one’s home (or wherever they prefer). OTT services have been seeing a rise in activity and shall continue to do so due to the increasing number of internet users in India. Presently estimated at 574 million, the number is expected to grow to 639 million by the end of this year. And while it may seem like it is the urban population in India that is driving this digital revolution, it is not. It is the rural population, which makes up about 65% of the country’s population that is at the front of this turn. Rural India saw a 45% rise in internet penetration in 2019 as compared to urban India’s 11%. Additionally, it was reported that 84% of users accessed the internet for entertainment purposes. While easier access to the internet is certainly responsible for the expansion of OTT services in India, inexpensive smart phones and growth in spending power deserve equal credit. India’s smart phone base is expected to reach 820 million by 2022, and thereby, unleash the true potential of OTT services.
Due to the rapid expansion of the OTT services industry, there is very strong competition not just internally but also with traditional brick-and-mortar businesses providing similar services. Just like traditional businesses have their channels of distribution, OTT services use Telecom Service Providers (or “TSPs”) to tap into their consumer base. Hence, strategic partnerships between OTT platforms and TSPs is a new and upcoming stream of revenue generation. The fact that such partnerships are profitable stands corroborated by the recent investments made and/or partnerships entered into by ‘technology giants’ such as Google, Microsoft and Facebook in/with Indian TSPs.
While this sector of the IT industry shall continue to grow, it is essential to regulate some aspects of it. Of course, OTT service providers have what is a ‘Best Practices’ Agreement between them, but there are many more facets of this sector that need regulation. This is where the Telecom Regulatory Authority of India’s (“TRAI”) 2018 Consultation Paper on Regulatory Framework for OTT Communication Services (“Paper”) comes into picture. This Article addresses the matters concerning the regulatory imbalance between TSPs and OTT players providing services that can be regarded as same/similar to services offered by TSPs and issues related to economic aspects of such OTT services. It will play a key role in the drafting of the regulatory framework which will eventually go on to become the law.
While there is no concrete definition of OTT services so far, attempts have been made to create one (See pages 5-9). The authors believe it is essential for a definition to bring the various aspects of such services under its scope. OTT services include not only communication and application services, as mentioned above, but also a blend of these. For instance, a video game may include a real-time virtual chat service. It is certain that such services use those provided by TSPs but do not necessarily compete with the latter.
This blog post is, in many ways, extended the discussion started by a 2015 Consultation Paper on the same topic. The 2015 paper was set out during the initial phases of the rise of the OTT services sector but did not cover all issues critical to the matter. Since 2015, the TRAI has made numerous recommendations on concerns relating to OTT services such as –
- Prohibition of Discriminatory Tariffs;
- Network Neutrality;
- Encouragement of data usage in rural areas;
- Market Dominance and Unequal Opportunities;
- Licensing conditions and applicability of the IT Act
- Privacy, security and ownership of data in the Telecom sector.
Despite such recommendations, no regulatory framework has seen the light of the day. In light of this, the authors intend to analyse the key elements for a draft policy relating to OTT services.
Rationale of an OTT Regulatory Framework
The driving factor for policy intervention with respect to OTT services is the availability of internet in abundance. There are three significant factors due to which internet has such a high frequency usage: (i) cheap and competitive prices, (ii) extreme geographical coverage in the country, and (iii) due to the surge in OTT services, high-speed internet is not a luxury but a necessity. The basic premise of any regulation is to protect the interest of stakeholders, consumers and the nation itself. This protection ranges anywhere from privacy issues to economic issues and more. One of the fundamental problems with the creating a regulatory framework for OTT services is the ‘multiplicity of services’ offered by companies which makes it difficult to determine the degree of regulation. For Example, WhatsApp provides a range of services including text messaging, calling and video calling services, and more. All of these services would require different amount of policy space in any proposed regulation. Moreover, the company has recently entered the e-commerce arena and the Unified Payments Interface (“UPI“) market. These changes would make the task of any proposed regulation very difficult.
One solution could be to employ the test devised by EU in its Electronic Communications Code. This is a two-tier test in its essence and tries to categorize an OTT service (interpersonal communication service) as ‘substantial’ or ‘ancillary’ and applies regulation where the interpersonal communication service is the substantial feature and not ancillary. There is a flaw in such categorization because the OTT services are diversifying by the day and it is a real possibility that an ancillary service of today might change into a substantial service tomorrow and vice-versa; and a communications code in general would not cover non-communication services.
The specifications of any such regulatory framework for OTT services are rooted in the policy objectives and there exist three ways in which such policy objective can be devised. Firstly, there exists a prima-facie difference in the playing fields of OTT service providers and traditional Telecom service providers, but a regulatory framework on OTT service providers would bridge this gap and could be a guiding principle for such a policy. However, this is tricky because consumption of OTT services benefits TSPs by increasing data consumption. This type of policy was adopted by countries like Australia and Turkey. Secondly, a government which wishes to be in close quarters with these so called on-demand video services and other online content manufacturing services can do so with a regulatory oversight to ‘protect’ its citizens in national interest, and this is precisely the policy objective of countries like Saudi Arabia, Kenya and Indonesia. At first, it might seem that the second approach is primarily applicable to non-communication services but that may change as the Indian government wants the option of interception of encrypted messages in interest of national security. However, this is currently not possible due to the absence of regulation and non-applicability of the Telegraph Act, 1885 with respect to OTTs. Thirdly, a combination of the abovementioned policy objectives can also be taken for drafting such a policy and the same has been achieved by countries like the U.K. and Singapore. Interestingly, content of the 2018 TRAI paper would reveal that the paper discusses the first approach in great depth, however, lays insufficient emphasis on the content regulation aspect, this outlines the policy objectives of TRAI.(See Pages 29-34)