Regulation of OTT Services

Background

The Telecom Regulatory Authority of India (TRAI) released a Consultation Paper on the Regulatory Framework for Over-the-Top (OTT) Communication Services (OTT-CP).

The OTT-CP is the latest in a series of pre-regulatory initiatives of TRAI pertaining to OTT services since 2015. Earlier consultation papers and recommendations covered a range of topics, including network neutrality, data protection, and tariffs. Given the subsequent pan-sectoral recommendations issued by the TRAI on these aspects, the OTT-CP, focusses on the limited question of licensing conditions for OTT service providers, and fair competition between OTT applications and traditional Telecom Service Providers (TSPs).

Key Areas of Consultation

Definitions

Given the wide range of internet-based applications which are referred to as OTT applications, there is no unanimity on what constitutes an OTT service.

Nonetheless, the extent to which OTT applications are complimentary to/ substitutable with traditional telecommunications services provided by TSPs, is a prime consideration to compare the level of regulation applicable to OTT service providers and TSPs.

Accordingly, the TRAI has sought comments on (a) whether substitutability should be used as a primary factor for determining the level of regulation of OTT service providers; (b) what factors should be considered while evaluating substitutability, and (c) what categories of OTT services can be considered to be substitutable with traditional telecommunications services provided by TSPs.

Economic Viability of Traditional TSPs

A consistent concern voiced by the TSPs about the proliferation of OTT services without any regulatory restraint, is that it could result in cannibalization of revenues by “free-riding”. While TSPs bear the costs of deployment of infrastructure, spectrum and management, as well as other applicable regulatory costs, OTT service providers, while competing with traditional TSPs, would not incur such costs, and would divert users away from the TSPs traditional revenue streams – calls and short messaging services. It was argued that this regulatory arbitrage enjoyed by the OTT service providers could deter further investments by TSPs in telecommunications infrastructure. This argument was explored by the DoT Committee on Network Neutrality in 2015. It observed that while there was a shift to data-based communications the impact of the resultant decrease in traditional call revenues, was not severe enough to render the TSPs’ business model unviable.

Meanwhile, the TRAI observes that the rapid proliferation of IP-switched networks and LTE technologies, have drastically changed market conditions since the last consultation in 2015. With TSPs focusing on data as a revenue stream, OTT services could provide an avenue for revenue growth in the sector. Nonetheless the TRAI acknowledges other challenges such as license fees, taxes, and the costs of complying with Quality of Service (QoS) obligations during peak traffic hours, that may sometimes be attributable to OTT services.

It is in this context, that the TRAI has sought comments on (a) whether and how OTT services might impact future investments in expansion of telecommunications infrastructure; (b) whether and how OTT services should contribute towards the expansion of infrastructure upon which their services are predicated, and (c) whether in light of the shifting nature of the telecom business, interoperability between various OTT services, as well as between OTT services and TSP networks, could serve to render the market more competitive.

Parity of Regulation and Security Considerations

Several license conditions imposed upon the TSPs, emanate from national security concerns and public interest. These include the obligation to entertain lawful interception requests, and the obligation to provide access to emergency services.

In this context, OTT-CP considers the various obligations placed upon TSPs, such as maintaining privacy and security of communications, entertaining lawful interception requests, etc. as well as other regulatory obligations such as adherence to QoS obligations. It then proceeds to consider the extent to which such obligations might be made applicable to OTT service providers providing similar or substitutable services.

Accordingly, the TRAI seeks comments on (a) whether there are any issues relating to lawful interception of OTT communications; (b) whether the security related obligations of TSPs and OTT service providers should be separated, and (c) whether like traditional TSPs, OTT service providers should be mandated to provide access to emergency services.

It is interesting to note that while considering issues of national security and lawful interception, the TRAI mentions issues relating to data localization requirements. However, it does not seek any directed and specific comments on the issue. Similar issues had been considered in TRAI’s earlier Recommendations on Privacy, Security and Ownership of Data in the Telecom Sector issued in July 2018, as well as other committees such as the B.N. Srikrishna Committee on Data Protection. These aspects might be included by the TRAI in its final recommendations on this matter.

Regulatory Approaches

The last set of issues considered by the TRAI in the OTT-CP relate to possible regulatory approaches for regulating OTT service providers.

The OTT-CP provides an overview of various regulatory approaches adopted in other jurisdictions. For instance, the United Kingdom’s Office of Communications (Ofcom) has adopted the stance that an extension of all obligations applicable to traditional telecommunications service providers to OTT service providers would be disproportionate. Accordingly, the Ofcom is of the opinion that specific regulatory obligations should be extended to specific OTT services depending on the extent of risks posed by the services and the extent to which such services are substitutable with traditional telecommunications services.

Likewise, regulators in other jurisdictions considered in the OTT-CP, have taken different positions on regulatory approaches, so as to build a flexible and proportionate regulatory environment. The overarching objectives of this emerging body of regulation remain the same – competitiveness, sustained investments, privacy, consumer protection and security.

The TRAI also considers positions taken by associations such as the GSMA, which advocates technology neutral regulations for OTT service providers and TSPs alike.

The TRAI now seeks comments on two very broadly framed issues for consultation, i.e.  (a) whether there are indeed any issues of competitiveness (“lack of level playing field”) that need to be addressed vis-à-vis OTT service providers and TSPs, and if yes, which regulations presently applicable to TSPs, ought to be applicable to OTT service providers as well, and (b) whether there is a need to review or modify the obligations in the context of OTT service providers?