The sort of closed Internet that TRAI is proposing, in defiance of the principle of net neutrality, is no longer on the discussion agenda in any country
With the fight for net neutrality reaching a fever pitch, the Competition Commission is examining whether Indian telecom operators are violating the principle. Unfortunately, the Telecom Regulatory Authority of India’s (TRAI) Consultation Paper on Regulatory Framework for Over-the-Top (OTT) Services appears to propose only two choices: that we either accept licensing of Internet services or compromise on net neutrality. If TRAI’s claims are accepted, any business that uses the Internet — e-retail, media or health care — can potentially be regulated by TRAI as an OTT service. This is indeed regulatory overreach on a grand scale.
Internet Service Providers (ISPs) are licensed to provide data services. They transmit data packets generated by the users or, more precisely, by the users’ computers. What is in the packets is treated as content — video, audio, text or pure data — and is generally not subject to telecom regulations. That is why we do not need a licence to create a website, provide a service through the Internet, or an app for use on computers, tablets or mobile phones. These are not telecom services but content. This could change if TRAI’s definition of OTT services is accepted. By defining any application or service that uses the Internet as an OTT, it becomes subject to TRAI regulation.
The issue is not whether TRAI would ask for licensing all websites or applications. It may restrict licensing to only a few existing services. For example, it may argue that only Skype (not Voice over Internet Protocol) and WhatsApp (messaging service using the Internet) need licensing. The problem is that any website that offers real time chat or conferencing is no different from Skype or WhatsApp.
For an open Internet
The definition of the Internet as a bunch of OTT services that may need licensing has the potential of creating a closed Internet. The Internet has grown due to its open character, and what is called permission-less innovation. Anybody can connect to the Internet and offer an application or a service, or provide a website containing blogs and other content. The sort of closed Internet that TRAI is proposing is no longer on the discussion agenda in any country.
The definition of the Internet as a bunch of OTT services that may need licensing has the potential of creating a closed Internet. The Internet has grown due to its open character, and what is called permission-less innovation. Anybody can connect to the Internet and offer an application or a service, or provide a website containing blogs and other content. The sort of closed Internet that TRAI is proposing is no longer on the discussion agenda in any country.
Any regulatory exercise asks one key question: what is the problem the regulator is addressing? TRAI states: “Telecom service providers offering fixed and mobile telephony are currently being overwhelmed by online content, known as over-the-top applications and services.”
“If TRAI’s claims are accepted, any business that uses the Internet can potentially be regulated as an OTT service. This is regulatory overreach. ”
If the rapid growth of data traffic is indeed “overwhelming” the telecom network, it could be for two completely different reasons. One is that telecom operators, despite making enough money, are not investing in upgrading their infrastructure. This calls for the regulator to crack its regulatory whip on the operators. The second reason is that the growth of data traffic is not generating adequate revenue for the telecom operators. If this is so, we should ask why the rates for data services are low considering TRAI has allowed the operators to set their own rates.
The telecom operators lobby has not offered any evidence that data services do not generate enough revenue; instead figures show revenues growing at a dizzying pace. Their argument, repeated by TRAI, is rather that Internet companies are making tonnes of money, and so they too deserve to get a share.
In fact, when telecom companies want to raise money from investors, they present a rosy picture of a booming data business and rising revenues. Companies that prepare reports for investors — such as Morgan Stanley or PricewaterhouseCoopers — say much the same things. In fact, even voice and SMS traffic in India is growing. The recent high auction price of spectrum shows that the telecom sector has enough revenues.
So why this campaign against OTT services cutting into telco revenues? Worldwide, telcos have failed to get into OTT services or what we should call Internet-based services. They look at the huge success of a number of Internet companies with a jaundiced eye, and feel that since they “supply” the basic infrastructure, they deserve to “partake” of the goodies. If they claim their revenue is too low to build infrastructure, the claim can easily be shown up as false. Hence, the argument on how much OTT vendors earn and why a part of it should go to telcos.
The most cited case, Skype versus voice calls, uses fictitious figures of losses. Telecom companies calculate losses by converting Skype call time to equivalent voice call value, as if all people who use Skype now would actually make voice calls if Skype were not there.
TRAI has partially bought into this argument by calling Skype voice calls “revenue foregone”. TRAI also states (P: 19): “This phenomenon, namely, the growth of OTT apps providing voice services has started to impact revenues of TSPs from voice services, which constitutes a major portion of their revenues.” This, again, is an assertion for which no data has been provided. Yes, some drop has taken place in international calling. But has it not been more than compensated by an increase in revenues from data services and growing local calls?
Comparing SMSs on voice networks to equivalent services such as WhatsApp is also misleading. Mobile services were originally designated as value-added services, while voice on landline was considered a basic service. When mobile services were merged into basic services, SMS also came in. The reality is that telecom companies offer SMS, essentially a data service, at a very high price. This penalises the lower-end users, who use basic 2G services; not high-end users who have migrated to voice and data services and can use applications such as WhatsApp.
The issue is whether telecom companies can discriminate between packets based on private agreements with specific Internet vendors. Simply speaking, the principle of net neutrality demands that telecom service providers should not discriminate between data packets based on source, ownership or content. The principle is essential to maintain a level playing field on the Internet by ensuring all content is equally accessible to the public.
Expanding the network
If net neutrality is violated, telecom operators would have a perverse incentive to not expand their infrastructure or bandwidth. Once bandwidth is choked, bigger Internet players will be willing to pay network operators to speed up their packets. Net neutrality regulation, thus, provides an incentive to expand the network to relieve congestion, rather than constrain the bandwidth for earning monopoly profits. This was recognised most recently in the American Federal Communication Commission’s decision to classify Internet services as a public utility.
If net neutrality is violated, telecom operators would have a perverse incentive to not expand their infrastructure or bandwidth. Once bandwidth is choked, bigger Internet players will be willing to pay network operators to speed up their packets. Net neutrality regulation, thus, provides an incentive to expand the network to relieve congestion, rather than constrain the bandwidth for earning monopoly profits. This was recognised most recently in the American Federal Communication Commission’s decision to classify Internet services as a public utility.
There are many ways in which TRAI can address the issue of monopoly, the regulatory concern that it claims to be addressing. It could regulate monopolies directly, or refer such issues to the Competition Commission. It can also regulate the interconnection rates between external networks that connect to Indian networks. All Internet companies such as Google and Facebook use their home networks to connect to Indian consumers, with servers located in their home jurisdiction. Higher delivery charges would help create extra revenue for the Indian network operator.
Among regulators in India, TRAI has functioned relatively well. Though it failed to stop the 2G scam, it did, at least, caution against it. But the TRAI document in question is almost entirely based on the submissions of telecom players. Indeed, the paper reads as if it has been drafted by the telecom companies, for the telecom companies, to meet their greed-dictated needs. The TRAI has sullied its relatively clean record with this shoddy document.
