Telcos Vs OTTs: Debate Rages Over Who Shall Bear The Burden of Carrying Data

Telcos demand that OTTs agree to a network usage fee (NUF), via a holistic policy framework, as both camps cater to the data needs of a digitally expanding nation. OTTs have countered this view citing that such a system would stifle innovation and their respective services are different and cannot be compared.

As regulatory authorities walk a tightrope in ensuring a level playing field, a recent paper by the Cellular Operators Association of India (COAI), which includes all three major telecom companies as its members, has put forth a proposal for Large Traffic Generating services (LTGs) like OTT platforms to bear a fair share of NUF. 

COAI’s argument in their paper titled “Addressing Rising Data Traffic and Associated Infrastructure Costs in Indian Telecom” hinges on analysing its own figures on infrastructure spending by telecom service providers (TSPs) and data usage statistics from the TRAI spanning 2012-2023.

While the attempt to highlight the needs of network infrastructure is important, the assertions and methodology associated are worth evaluating.

Claims And Counter Claims

In its paper, COAI asserts that LTGs consume a significant portion of internet bandwidth, leading to higher network costs for operators. However, it overlooks that both LTGs and TSPs tailor their services to meet consumer demand. 

Almost all LTGs offer consumers content of varying quality. Similarly, TSPs offer different plans to consumers, including high-speed unlimited data options. This tailored approach by both segments caters to specific consumer needs. Such optimisation involves considerations such as appeal, innovation, stickiness, quality of service, and the availability of substitutes. These factors play an important role in engaging consumers and driving competition. 

Furthermore, internet bandwidth represents only one facet of the telecom-content ecosystem. Other components include access to content in local languages, robust security measures and efficient data centres. Major tech players such as Google, Amazon, Microsoft and Netflix, have made large investments in these areas. 

Unlike TSPs’ long-term investments in towers, spectrum and fibre infrastructure, these tech giants’ investments are relatively more frequent and adaptable to evolving consumer demands.

“Telcos have exclusive rights to interference-free spectrum that give them economic advantages like high entry barriers, reduced competition and exclusivity in business operations, unlike OTT players, who don’t have these exclusive rights and have no control over how telecom infrastructure is developed or deployed,” said Broadband India Forum (BIF), an independent policy forum for digital communications, which counts Netflix, Amazon, Cisco, Google, Microsoft, Facebook-owner Meta and Intel among its members.

COAI also suggests that LTGs benefit from a dual revenue advantage, charging both advertisers and consumers across various business models while TSPs only charge consumers for network access.

Contrary to this claim, LTGs insist they operate on various pricing models such as freemium, flat-rate subscriptions, tiered subscriptions and ad-based pricing. These models cater to consumer preferences and ensure a balanced revenue stream.

Looking To The West (And East)

COAI highlights the tussle between SK Telecom (a South Korean telecom operator) and Netflix over implementation of NUF in South Korea. But the aftermath of NUF in the country, LTGs point out, tells a different story: higher costs for consumers, reduced internet quality and market distortion. These unintended consequences underscore the potential risks of similar measures elsewhere. 

LTGs are increasingly opting to either tie up directly with individual Korean TSPs to circumvent the NUF, or offer limited content in the country. These detours have distorted the market and reduced traffic efficiency. As a result, South Korea now has the highest average latency (i.e. time taken for a data packet to travel from one designated point to another) among OECD countries.

The tussle also ignited a debate over net neutrality as it raised concerns over potential violations of open internet principles. Net neutrality is the principle that all internet traffic should be treated equally by internet service providers (ISPs), without discrimination or favoritism towards particular websites, services, or content.

COAI also mentions the European Union’s (EU) exploration of a policy framework to ensure ‘big tech’ companies contribute to telecom capital expenditure budgets. However, the industry body does not acknowledge the concerns and backlash from various interest groups, institutions and telecom organisations against such a move. 

Dissenters include EU members such as Austria, Denmark, Germany, Italy, the Netherlands, and the European Telecommunications Agency Berec, the Internet Society and the RIPE Network Coordination Centre, telecom organisations MVNO Europe and EuroIX. Civil rights and consumer bodies have rejected the NUF because of its potentially negative consequences on consumers.

COAI references the United States Senate’s Lowering Broadband Costs for Consumers Act of 2023 proposing contributions from edge service providers, or LTGs, towards infrastructure costs. However, the legislation remains at the proposal stage with uncertainties regarding its impact and implementation. 

Proportional Contribution To Infrastructure

COAI claims that targeting LTGs would ensure that platforms placing a heavier demand on network infrastructure contribute proportionally to its maintenance and growth. This approach promotes fairness and incentivises LTG platforms to optimize their data usage, fostering a more efficient and sustainable digital ecosystem.

The COAI’s initial argument overlooks the impact of LTGs on TSP network adoption. Research by Viard and Economides (2014) reveals that a one percent increase in access to online content, primarily driven by LTGs, has more than twice the impact on adoption compared to a similar increase in per capita income (approximately US$1,916 across 177 countries).

This effect is particularly pronounced in countries with higher internet adoption and greater linguistic diversity such as India, making content a vital tool in addressing the digital divide.  

In February 2024, COAI told the Finance Ministry that telecom operators have spent an additional Rs 10,000 crore in capital expenditure to enhance network infrastructure to support traffic from OTT platforms since March 2022, insisting that larger OTTs should foot the bill for the proposed fair-share charge.

Also Read: Facing Uncertainty, Indian Telcos Are Raising Funds To Stay Afloat, Safeguard Future

COAI’s Methodology

COAI contends that data carriage capacity correlates directly with the infrastructure in place. However, their analysis conflates data carriage capacity with data usage. 

Data carriage capacity refers to the amount of data transmitted within a given timeframe, while data usage represents the actual utilisation of this capacity. Data usage is just a fraction of the total data carriage capacity available.

Accurately measuring this capacity is challenging, given the dynamic influence of technology advancements, management strategies and user number. For instance, artificial intelligence (AI) can facilitate real-time monitoring and dynamic spectrum allocation, significantly enhancing network capacity.

COAI’s attempt to equate data carriage capacity solely with data carriage capacity overlooks the above nuances. Moreover, there appears to be a downward bias, suggesting that COAI may be underestimating the actual data carriage capacity of the network. 

COAI also categorises data usage between 2014 and 2023 into two phases: (a) pre-2017, with low data usage, and (b) post-2018, with high data usage. They then project a linear growth of data usage from the first phase, labelling it as TSP baseline traffic. COAI contends that the gap between this baseline and actual data usage burdens TSPs with infrastructure costs. 

Equating data usage with infrastructure load is contentious. Moreover, COAI’s linear projection overlooks the non-linear nature of network growth, which typically follows an S-shaped curve.

The Telecom Regulatory Authority of India in 2020 had recommended against any regulatory intervention for OTTs, but came out with a consultation paper last year titled ‘Regulatory Mechanism for Over-The-Top (OTT) Communication Services, and Selective Banning of OTT Services,’ which was met with criticism. TRAI does not hold any regulatory powers over OTT platforms, which are currently being regulated by Ministry of Electronics and Information Technology. 

Will OTTs pay up? Will telecos back down? One thing should be clear, public interest should be at the heart of whatever regulations come into play.