News circles are abuzz with the likely investments by global tech giants Microsoft, Amazon and Google in the Indian telecom sector following Facebook’s stake-buy in Reliance Jio barely two months back.

In the telecom regulatory space, these firms are often referred to as ‘Over-The-Top’ (OTT) service providers since they offer services such as social networking, messaging, streaming and cloud computing that essentially ride over the underlying telecom infrastructure. Some OTT services are also fully or partially substitutable to those provided by the telcos.

It is worth examining the key motivations and potential impact of these deals in the marketplace under extant regulation.

Convergence Bill

Subsequent to the announcement of the New Telecom Policy, 1999 that recognised the ‘convergence of both markets and technologies’, the Ministry of Communications and the Ministry of Information Technology were merged to form the Ministry of Communications and Information Technology in 2001.

The government also introduced the Convergence Communications Bill, 2001 with an objective of establishing a single regulatory agency — the Communications Commission of India — for licensing and regulation of telecom and broadcasting, including application and content services. The Bill was significantly inspired by the Communications Act, 1996 in the US and the Multimedia Act, 1998 in Malaysia.

The Telecom Regulatory Authority of India (TRAI), established in 1997, was also assigned the task of regulating broadcasting services in January 2004 vide a notification issued by the government. Soon after, with the dissolution of the 13th Lok Sabha, the 2001 Bill lapsed. Fast forward to 2020. A consumer can watch TV shows on a mobile; the TV can connect to the home router provided by the telecom company; cable TV network can set up a Wi-Fi network in your home. One can access a plethora of applications and content services — the OTTs. These can be provided not just by the telcos, the broadcasters, the device manufacturers but increasingly by third parties, as envisioned in the lapsed Bill.

In this context, unsurprisingly, a host of formal and informal alliances have been formed or are in the pipeline with an objective to create seamless ‘value networks’ for customers.

Content is king

While the revenue of telecom companies declined due to competition and commoditisation of their offerings, a host of ‘Internet’ companies has seen massive growth in the number of users, revenues, and market valuations, thanks to the huge demand for OTT services.

The Internet companies are also doing their own bit to connect the unconnected, often using innovative technologies leveraging the unlicensed spectrum bands. These include TV whitespaces and low-altitude balloons besides, of course, the numerous variants of Wi-Fi and even optical fibre.

Has the regulation caught up with these market realities?

Role of regulation

Telecom licencees are subject to a host of levies including spectrum charges, licence fees, domestic taxation and regulatory stipulations on Net neutrality. On the other hand, Internet companies may be subject to lower levels of taxation in India, and gain from regulations such as Net neutrality. Till a few years ago one could argue that comparisons such as these were as inadmissible as comparing apples and oranges.

For one, Internet companies were subject to the forces of hyper-competition and risked being wiped out at a moment’s notice, while telecom companies enjoyed more stable market shares, thanks partly to their large asset base including spectrum. However, the phenomenon of convergence makes it incumbent on the regulators to examine afresh competition issues between the telcos and the internet companies.

Who should regulate?

Clarifying the respective roles, in 2018 the Supreme Court had determined that the CCI (Competition Commission of India) can commence any proceedings to examine issues under its remit such as the effects of mergers and acquisitions in the telecom sector or abuse of market power or collusive behaviour, albeit only after the sector regulator, TRAI, has examined the relevant technical issues.

Since the Internet companies do not need a telecom licence, the CCI should be the natural port of call to examine such issues. However, one should not be surprised if TRAI also undertakes its own scrutiny considering that it has been examining issues related to OTTs and the Net neutrality framework essentially mandates non-discriminatory treatment of OTTs by the telcos.

Dynamic markets

It is a fact that businesses want regulatory predictability. However, it does not imply that the regulations need to be static. Instead, the regulators need to be alive, alert and responsive to the changes in the marketplace. What is really needed is that the regulatory institutions function in a predictable and transparent manner.

In this context, it would be useful to revisit norms around licence fees, spectrum charges, and Net neutrality. The conception of Net neutrality focussed on curbing the ability of telecom companies to act as gatekeepers should not turn a blind eye towards the Internet companies to act as gatekeepers. It also ignored the possibility of using vertical integration to exercise undue market power.

This asymmetric treatment has resulted in Internet companies increasing their power vis-a-vis telecom companies within ‘value networks’. Today, we are on the verge of another transformation where a level-playing field must be created. In a 5G world, industry verticals will increasingly adopt digitisation of supply chains through a host of measures, including smart devices, remote surveillance, and co-creation of value with the customer. This world will spawn new applications, devices, and industry players all connecting by a mesh of communication networks.

This makes two demands of us: First, it needs new models of competition regulation to create opportunities, and foster innovation. Second, we must help to seed a critical mass of use cases in order to trigger virtuous cycles of adoption.

Time is ripe to have a Ministry of Convergence Communication as well as to revive and revise the Convergence Communications legislation. We do need to bite this bullet in the mission to improve the well-being of every Indian, bit by bit, byte by byte.

Maheshwari is a Public Policy Consultant and Senior Visiting Fellow at ICRIER; Sridhar is Professor at IIIT Bangalore. Views are personal

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