A QUESTION OF FAIRPLAY
An ongoing feud between the Cellular Operators Association of India (COAI), and Broadband India Forum (BIF), is raising some serious questions today. Both industry bodies are now seeking remedies from Department of Telecommunications (DoT) for telecom operators and Over the Top (OTT) Platforms respectively, looking for a fair and reasonable mode of conducting business. The entire fiasco between COAI and BIF started when the Department of Telecommunications released the draft of Indian Telecommunication Bill, 2022, in the public domain. COAI in its recommendation to DoT suggested that OTT apps such as WhatsApp, Signal, Zoom, Skype, Google, and Telegram, which provide (voice or video) calling and messaging services must pay telcos in order to make it a level playing field. Experts say that the war of words between these two industry bodies will eventually benefit the government if the new draft of Indian Telecommunication Bill, 2022, becomes a reality by bringing OTT services under the telecom licensing regime. Explaining the reason behind the entire fiasco, Karan Taurani, EVP of Elara Capital said, “This issue between COAI and the BIF is heating up because the telcos are really struggling to scale up revenues. With time, the services by telcos are becoming more irrelevant as voice and messaging is completely moving towards the OTT apps. I think somewhere a middle ground has to be reached in the issue because one can’t let one business die out completely at the cost of other one growing so substantially. Industry bodies play a crucial role in helping their members to reach a middle ground.” According to COAI, Telecom Service Providers (TSPs) have contributed an amount of nearly Rs 17,627 crore towards licence fee and Rs 7,073 crore towards spectrum usage charge (SUC) for FY 2021-22 alone. The telecom industry revenues on the other hand, is up just 40 percent in the last five years. Lt. Gen. Dr. S.P. Kochhar, Director General, COAI explains COAI’s stand and says, “Communication OTTs do not contribute to the exchequer in the form of license, levies, taxes fee etc., as they are not presently regulated by the Ministry of Communications, although their services are similar to that provided by the telcos. There lies inequality where only TSPs seem to bear the costs for Infrastructure, spectrum management and also License fees, whereas the OTTs seem to be bypassing the existing licensing and regulatory regime, thus creating a non-level playing field between the TSPs and the OTTs.” Countries like China, South Korea, UAE, Syria, and Qatar have banned use of multiple OTT communication services. Very recently, the Court of Justice of the European Union dismissed an action brought by an OTT Communications Service Provider against a decision of the European Data Protection Board to impose corrective action against the entity for its use of personal data in Ireland. Meanwhile, BIF has countered the suggestions of COAI and have claimed that the infrastructure for any communication network also includes data centres, undersea cables, content hosting centres, content delivery networks and more – all of which are built by the OTT platforms. When asked if COAI’s suggestion to bring OTT apps under the licensing regime justifiable to which TV Ramachandran, President of BIF said, “It is not at all justifiable. The fact is the services provided by OTT apps and telcos are not at all comparable. COAI and its members think that everything is equal to telco service but it does not happen to be so. Telcos have a very powerful licence and lot of powerful rights. This gives them an unique strength to address the market and can offer wide spectrum of offerings. On the other hand, OTT players cannot reach any customer without going through telco system and they do not get any rights which telcos have. They are not comparable products at all and can’t be brought under the telecom licensing regime.” When asked whether the war of words between BIF and COAI would in the end benefit the government and neither the telcos and OTT apps, Ramachandran said, “It is conceivable that the government would benefit eventually while neither the telcos or OTT apps getting any benefits. We have often seen that two parties engage in unfruitful conversations and at the end the third party gets all the benefits. Customer loses at the end of the day.” He adds, “Let us not forget that during the pandemic content was the driver which made telecom service providers useful and kept the existence going. Content is the OTT and pipe is the telecom infrastructure. The biggest flaw in the whole suggestion by COAI is that customers who are already paying the telcos for their services will be burdened to pay more which will leave a hole in their pockets.” Who should pay whom? According to the BIF, traffic from OTTs forms a major part of telcos’ revenues since OTT users are the ones using the network most. TV Ramachandran, President of BIF, said, “One should note that, customers of telcos are downloading the OTT apps and are using it. At multiple forums, telcos have mentioned that majority of their traffic is arising out of OTT apps. It is very funny in my opinion that if majority of the traffic is due to OTT that means all the demand is arising from there. Customers are paying for the usage of data and I don’t see any reason why OTT apps would pay telcos while it has to be vice versa. Ramachandran explains, “Just imagine a situation, if a certain OTT player decides to not provide the services for a telco A because the telco A is demanding certain charges. Customers using that particular OTT app will go away from the telco and at the end, that particular telco will be affected. Telcos will lose out in a major way if they start charging OTT apps. Telcos should work closely with OTT players and must have live and let live relationship.” Internet & Mobile Association of India (IAMAI) in its statement to bring OTT apps under the telecom licensing regime claimed that the implications of this move would create an ‘existential crisis’ for start-up ecosystem by creating herculean barriers. IAMAI said, “Despite this, certain policy experts continue to propagate fantasies about equitable contributions from stakeholders within the OTT layer, which would only seem to strengthen the gatekeeping abilities of the owners of the infrastructural layer on which OTT services operate. These changes would only establish additional sources of revenues for well-established sectors while leaving the start-up ecosystem vulnerable to compliance costs even when they may be pre revenue.” Anup Sharma, Independent PR and Communications Strategy Consultant says, “Considering the huge investments on both sides, with long gestation period to generate revenues, the suggestion by both industry bodies is justifiable. The key question of course is who pays.” Citing an example of Airline companies, he says that airlines are known to pay fee to airports to avail the required facilities there. The fee may vary significantly between airports and consider different factors, including aircraft type and weight, landing time, and sometimes emissions and noise. Some locations split this into a fixed fee and a variable fee (based on the load factor), besides the usage fees for airport parking areas. But most of these costs are passed on to the end users in the high ticket price. He says, “Very similar is the demand by Telecom operators that contribution of OTTs to network costs can be based on assessable criteria like volume of traffic, turnover threshold, number of users, etc.” Rammohan Sundaram, Country Head & Managing Partner – Integrated Media, DDB Mudra Group says, “To me it is pretty straight forward. Telecom service providers have paid huge sums of money to the regulator to obtain licenses. These licenses enable them to operate in multiple spectrums leading to eventual consumption of the services on which OTTs run their offerings. Whether it is communication based on voice, text or bandwidth, consumption through consumers watching entertainment or sports, all of it is currently free for the OTTs running on the information highway. Therefore, if there is any claim on revenue sharing then COAI clearly is on the right side of the ask, given OTTs make money on the information highway laid down by the TSPs (Telecom Service Providers).” Justifying the suggestions of both COAI and BIF, Amit Singh, Director - Planning, Carat India, said, “In my opinion, both industry bodies’ suggestions are justified. We see that OTT platforms drive data consumption, and data consumption drives content consumption. To benefit from this regulation, synergies must be established between what each association wants from the other.” Impact on advertisements? Lt. Gen. Dr. S.P. Kochhar says, “These OTT platforms earn colossal revenues indirectly by advertisements based on data analytics and other monetizing strategies of data collected from subscribers of its platforms. Moreover, Enterprise or Business customers are charged a fee by OTT players for using their platform for business/commercial purposes.” He further says, “Since most of the OTT platforms are owned/operated by foreign tech giants, this Indian data resides in foreign shores and is used for adding to their revenues and increasing the GDP of their country of origin, not India. Incidentally, the huge databases of subscriber data captured by TSPs as part of their operations, and resident in India, cannot be monetised, by law. But OTTs do that at will.” When asked whether the war of words between BIF and COAI would in the end benefit the government and neither the telcos and OTT apps, Ramachandran said, “It is conceivable that the government would benefit eventually while neither the telcos or OTT apps getting any benefits. We have often seen that two parties engage in unfruitful conversations and at the end the third party gets all the benefits. Customer loses at the end of the day.” Amit Singh of Carat India affirms that advertising rates would be affected if OTT services are brought under the Telecom licensing regime, Singh says, “The OTT Apps may or may not be affected by this to a greater extent, according to me. Nonetheless, if the license fee is levied annually or the volume is high, then it may affect the subscription charges or advertising rates of platforms, causing a drift in the market.” “The inclusion of OTT apps under the telecom licensing regime may affect advertising on OTT apps, as previously mentioned. Due to license fee inclusion, advertising rates may need to be revised to maintain profitability and EBIDTA. In this case, advertisers would have to reconsider their advertising avenues and calculate their ROI. Their advertising budgets may be managed by one or at most two platforms. Such price revisions may not be anticipated by the advertiser,” he says. Talking about the implications of bringing OTT services under telecom licensing regime, Sundaram says, “Prices of subscriptions might increase nominally which won’t heavily affect the consumers; on the advertising front, they can opt for a revenue sharing arrangement which could favour the OTTs like an 80:20 share favouring the OTTs. This way there is no imbalance and both of them continue to protect their turfs, otherwise it is like using a road laid down by the TSPs with no toll charges.” Confirming that the move would eventually end up brudening the consumers, Dilip Chandra, Vice-President, Product and Analytics, aha said, “If OTT apps are brought under the telecom licensing, the flexibility to operate and monetise the platform will be affected. They will be subject to the licensing terms within which the apps have to operate, eventually passing on some of the baggage to the end customer. The streaming ecosystem requires a conducive environment for every player to grow to a certain maturity before contemplating monetisation models.” Calling it a major jolt for OTT apps if brought under the telecom licensing regime, Taurani of Elara Capital concludes, “If OTT apps are brought under telecom licensing regime then lot of regulatory headwinds will have negative impact for these companies. Today these companies are operating operating in a free environment of sorts. While telecom industry is one of the most regulated industries in the country today. So, if OTT apps were to come into this in the telecom scheme of things, I think it is a big hangover as far as regulations are concerned. And, this can really have a big negative impact in terms of the growth of their app and the future of these apps in the country today.”
The mega question which looms over the tiff between COAI and BIF is whether telcos should pay the OTT apps or vice versa. IMPACT spoke to multiple experts and media agencies to understand if the suggestion given by both industry bodies are even justifiable.
He further said that the Telecom operators have lost revenue from few of their initial sources - like voice and SMS - as users shift to VOIP and Messaging via social media. But this also leads to high usage of data- which benefits the telecom operators with revenues.
According to media reports, Facebook India Online Services reported gross advertisement revenues of INR 16,189 Cr in financial year 2021-22 (FY22), up 74% year-on-year (YoY) from INR 9,326 Cr in FY21. While Google India saw its gross advertisement revenues grow 79.4% year-on-year (YoY) to about INR 24,926.5 Cr, in the financial year ending March 2022. These tech joints offer OTT communication services as offered by telcos such as Bharti Airtel, Vodafone-Idea and Reliance Jio.
Meanwhile, BIF has countered the suggestions of COAI and have claimed that the infrastructure for any communication network also includes data centres, undersea cables, content hosting centres, content delivery networks and more – all of which are built by the OTT platforms. When asked if COAI’s suggestion to bring OTT apps under the licensing regime is justifiable, Ramachandran of BIF said, “It is not at all justifiable. The fact is the services provided by OTT apps and telcos are not at all comparable. COAI and its members think that everything is equal to telco service but it does not happen to be so. Telcos have a very powerful licence and lot of powerful rights. This gives them an unique strength to address the market and can offer wide spectrum of offerings. On the other hand, OTT players cannot reach any customer without going through telco system and they do not get any rights which telcos have. They are not comparable products at all and can’t be brought under the telecom licensing regime.”
Sundaram believes that these developments will have a minimal effect on the OTT apps and says, “Cost of advertising like in subscription might increase nominally but it won’t hurt the industry much. Voice and video services like WhatsApp consume a lot of bandwidth, so there might not be many free services if such a regime comes into play. Freemium might take some precedence, however, this is also far-fetched given that no place in the world has a situation as such currently exists.”
Tags : #OTT #SpecialFeature #telecomoperators #OTTservices #licensingregime