Regulation of OTTs-Striking the Right Balance

This post is based on my paper  for the Workshop on the “Economic Impact of OTT on National Telecommunication/ICTMarkets” held in Geneva, Switzerland on Tuesday, October  1, 2019, at ITUHeadquarters

Introduction-Traditional vs. digital are they to be treated at par?

Most of us cannot imagine life without our favourite Over the Top Services (OTTs). We depend upon them to search for information (Google), shop (Amazon, eBay), plan holidays (Airbnb), commute (Uber, Lyft), keep in touch with our friends (WhatsApp, Facebook), stream music and video (iTunes, Netflix), improve our career prospects (Linkedin). 

While there is no disputing the tremendous consumer value created by OTTs, the issue of whether, how and how much to regulate these services remains a difficult one. Regulators must be cautious about the impact of their actions on innovation and competition. While issues like security, consumer protection, and taxation would need to be addressed, regulation of OTTs driven solely by the motivation of leveling the playing field between traditional and digital modes of service delivery would be detrimental to consumer welfare. Instead, a fresh look at regulation of the service concerned regardless of the medium may be the answer. The result of this exercise could well be an easing of the compliance burden on traditional brick and mortar firms while introducing more regulation for some digital firms such as large online platforms.

Self-Regulation & Cooperation may deter Over-Regulation

Security: Technology companies should voluntarily self-regulate and collaborate with governments to prevent online harms. This would reduce the tendency to over-regulate online services in response to real or perceived harm. A good example of the need for such cooperation is OTTs in the sphere of social media where security considerations have caused governments across the world to seek to regulate at least some of these OTTs at par with traditional means of communications. It is evident that given their popularity and international reach, they are susceptible to misuse and thus, governments will continue to demand interception for security purposes. However, it is also important to implement checks and balances that safeguard privacy and limit surveillance, at least at par with those that have existed for interception requests on traditional modes of communication. Given that OTTs cut across borders, this is also an important area for international collaboration.

Misinformation: The problem of fake news and misinformation is a grave one and it is related to the speed and scale of influence of social media platforms. Traditionally digital platforms have been treated as intermediaries with limited liability, but off late governments across the world have begun to consider regulation ranging  from adoption of self-regulation by intermediaries/platforms to regulatory enforcement of a code of ethics (UK), to imposing liability to screen out harmful content (UK, India[1]) are being examined[2]. It is being considered if new regulators need to be set up for this purpose. These bodies would also receive and settle consumer disputes and enforce accountability measures.

Technology itself can solve unique problems faced in relation to OTTs. India is WhatsApp’s biggest market. The Indian government has worked along with the firm to handle the menace of fake news or misinformation by limiting the number of forwards and displaying prominently the fact that the message is not original but forwarded. Further, consumers can check the veracity of information with the help of a tip line number.[3] Hence if digital technology firms providing OTTs cooperate with regulators and governments to find innovative solutions to address consumer protection issues, governments are less likely to overregulate.

Consent is overrated

Privacy and data protection are important concerns. Incidents of mining and misuse of sensitive consumer information have demonstrated equally the need for a sound accountability framework that digital firms must be held responsible to, as also, the acute need to create consumer awareness. International consensus on standards of data protection such as simplicity and clarity of consent is critical. Nations across the world are putting in place data protection frameworks, many of which lay emphasis on consent. However, consent, as it exists today, is complicated and asking a consumer to read/understand long agreements can be a meaningless exercise. There is a need to simplify and standardize disclosures to create greater transparency in use of personal data. Further, reducing the compliance burden for cross border OTTs also demands that international data protection regimes have some degree of harmonization. This is another important area for international consensus and collaboration.

Competition-Imbalance of Market Power

Competition authorities are already seized of the complexity of trying to apply traditional competition law tools to digital markets. Clearly, when services are offered free, the examination of anti-competitive behavior arising out of market power must shift focus from pricing to other measures of market power including how much personal data is collected as a part of the transaction/contract with consumers.  It is important to appreciate the imbalance of power between the supplier of digital services and its individual consumer. Economies of scale, network effects and lack of interoperability of platforms also call to question the countervailing power of substitutes. Thus, if a consumer does not like the fact that her personal data is collected for advertising can she switch from a prominent social media platform when almost everybody in her social circle uses that platform? Consumer awareness is necessary but not sufficient, as individual consumers do not wield sufficient bargaining power in such situations. Competition authorities and e-commerce regulators must also address B2B (business to business) malpractices. These include preferential treatment to in-house brands/services vis-à-vis third-party entities, and a variety of anti-competitive conduct ranging from tying and bundling, to exorbitant commissions for access to popular platforms.

New disruptive models of service delivery should not be regulated merely because they threaten an existing model, because such innovation and competition serve consumer interest. The OTT economy thrives on a business model that has no brick and mortar marketplaces, no physical records, less human labour, greater outsourcing and contracting.  However, when market power leads to consumer harm such as discriminatory pricing, anti-competitive conduct, counterfeiting, breaches of privacy, etc., regulators must step in.  India, through its draft e-commerce policy, is contemplating rules to ensure competition on online retail platforms as well as the protection of consumers using these platforms including anti-counterfeiting measures and steps to ensure the authenticity of ratings and reviews and better consumer redress.[4]

Should Regulation Lighten up to Attract Compliance

Interestingly, it can also be argued that if Governments were to design newer models of regulation that are light touch, flexible and recognize the scale and quantity of market impact of an OTT player, they may encourage more OTT players to conform to regulation. This would apply to various compliances such as licensing and taxation. In its National Digital Communications Policy[5], India has recognized the need for greater investment in digital communications and its positive multiplier impact on GDP growth as well as the need to rationalize levies on telecom service providers as one of the means to incentivize investment. The Department of Telecom has also recently approved more flexibility in the regulation of mobile virtual network operators[6]. It could be argued that OTT players may be more willing to submit, rather than resist if regulation regimes were less onerous.  It could also be considered whether the threshold for imposition of regulation on a service provider depended on market impact measured by market share regardless of the medium through which it operates. This would protect innovation by exempting startups/smaller firms while ensuring a level playing field between online and offline models. Why should a small taxi service or a small hotel chain have to bear different regulatory burdens compared with a large digital platform offering similar services? Singapore’s third-party taxi booking services Act[7] is one such example of light-touch regulation with a graded approach related to the size of business. Such an approach acknowledges the cost of regulation and that over-regulation of small firms can have a detrimental effect on innovation, both offline and online.

The Europeans Union’s new Electronic Communication Code seeks to regulate certain categories of interpersonal services as Electronic Communication Services. This would encompass popular OTT services. The Indian telecom regulator too has issued a consultation paper on regulation of OTTs which inter alia asks if certain need to be regulated at par with licensed telecom service providers. The consultation process shall duly consider views expressed by various stakeholders.[8]

Conclusion

Ultimately, the answer lies in striking the right balance and international cooperation and capacity building can assist regulators across the world to find the golden mean.

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[1] https://www.meity.gov.in/writereaddata/files/Draft_Intermediary_Amendment_24122018.pdf

[2] Disinformation and ‘Fake News’: Final Report House of Commons Digital, Culture, Media and Sport Committee, Eighth Report of Session 2017–19, February 14, 2019

[3] https://economictimes.indiatimes.com/news/elections/lok-sabha/india/whatsapp-finally-has-way-to-handle-fake-news-during-elections/articleshow/68684237.cms?from=mdr

[4] https://dipp.gov.in/sites/default/files/DraftNational_e-commerce_Policy_23February2019.pdf

^[5] http://dot.gov.in/sites/default/files/EnglishPolicy-NDCP.pdf

^[6] trak.in/tags/business/2016/03/30/telecom-mobile-virtual-network-operators-mvno-approved/

^[7] ITU GSR 2016 discussion paper

^[8] https://main.trai.gov.in/consultation-paper-regulatory-framework-over-top-ott-communication-services

Trust is an Integral element of Global Competitiveness in the Digital Age-The Huawei issue and Lessons for India

5G and the Huawei issue

The world is gearing up to prepare for the promise of 5G. This new digital communications technology is slated to make it possible to enhance broadband download speeds to 20 Gbps and provide benefits such as enhanced mobile broadband, massive machine-type communications and ultra-reliable low latency communications.

 In the meanwhile, a trade war has broken out between the USA and China over Chinese 5G equipment due to the purported security threat emanating from 5G devices and equipment manufactured in China. The USA has placed China on the entity list and Chinese Huawei is to be deprived of chips from US firms like Intel, Qualcomm. Micron and Google's Android OS. 

This is not a bilateral issue but has global ramifications. It is reported  that,

5G will offer hugely faster data speeds than today's mobile technology, which is important for consumers. But 5G will also be the technology that ensures artificial intelligence functions seamlessly, that driverless cars don't crash, that machines in automated factories can communicate flawlessly in real-time around the world, and that nearly every device on earth will be wired together. 5G will be, simply put, the central nervous system of the 21st-century economy (emphasis supplied)

There is apparently a fear of hidden Trojan horses or backdoors that may make networks vulnerable to Chinese espionage, given the nature of state control over Chinese firms. Though Chinese companies have vociferously denied the possibility, even European nations are likely to avoid Chinese equipment in their networks' core limiting it to non-contentious parts only. While it is often reported that there is little evidence of such security threats and that the issue is rooted in geopolitical compulsions, what does becomes apparent is the importance of Trust as an integral component of global competitiveness especially in the digital world.

India's Aspiration

More than ever before, as more and more economic activity shifts to the digital medium and the data that flows on digital communication networks is reckoned to be increasingly the most precious commodity (likened to oil or water), India is becoming acutely aware of the need to invest in creating a conducive eco-system for greater self-sufficiency in digital communications in terms of Indian ownership of IPR, participation in global standards and in design and manufacturing. Indian firms want a conducive policy environment to play a greater role in the global supply chain. As a nation, we want to harness the power of 5G networks, Internet of Things/Machine to Machine communications and Artificial Intelligence to transform our economy and quality of life. We are confident in our skills and entrepreneurial abilities and have a large domestic market to absorb digital products and services. With the right regulatory environment and policy support, we will hopefully realise our dream.

Lesson from China's  Journey

We often look at China's remarkable success in the sphere of digital R&D and manufacturing for possible lessons. Its dominance in patents, its high tech, and low-cost telecom equipment industry has allowed it to compete with top-ranking firms in the US and Europe.  Huawei has, after all, become the world's largest telecom equipment company.

 It is reported that,

Having posted more than $107 billion in revenue from operations in some 170 countries last year…., Huawei controls 29 percent of the global telecom equipment market. In the Asia-Pacific region, that figure is 43 percent, and in Latin America it's 34 percent, according to figures provided by the Dell'Oro Group, a market research firm....Huawei leads in 5G SEP ownership and dominates global discussion on 5G standards

However, we must also be careful lest we become vulnerable to the same arguments that are being used to thwart Huawei's progress.

If India is to retain its advantage as a software giant and venture into other parts on the supply side of the digital value chain, we must put in place world-class regulation that assures buyers and business partners that we are a trustworthy market and that so are Indian market players. Whether it is the regulation of individual sectors, financial regulation, competition law or privacy and data protection or FDI policy, regulation of Intellectual Property or taxation, we must have world-class laws and regulatory institutions and credible dispute resolution systems.

Analysis of the potential disruptive impact of the present US-China trade war on markets in both countries reveals that no matter how large our domestic market, sustained growth requires participation in global supply chains. 

Thus, to be competitive, a nation's credibility as a reliable place to do business is ultimately as important as its technological prowess or productivity or cost advantage and this is especially true in the digital era where ubiquity and the intensity of usage enhance vulnerability manifold rendering digital security both critical and of paramount importance.

We can harness our reputation and strength as a trustworthy and robust democracy to give us a competitive edge but only as long as we ensure that we are perceived globally as a nation that will uphold the rule of the law. We must also ensure that we build a reputation of fair and transparent regulation and independent, competent and credible regulatory institutions. This can be our biggest strength. We need to invest not only in R&D for technology but also for building regulatory capacities. As the digital era transforms every aspect of our lives and given that we want to harness the digital opportunity to metamorphisise into a technological superpower, we must engage continuously in R&D in cutting edge digital laws and regulations. We need a strong institutional framework that ensures that regulation in India is insulated from short term considerations and inspires national and international confidence.

Better Late than Never-US Competition Law Agencies Join the Fray

After seeming to have been sitting it out while the EU and UK agencies have traversed miles regarding competition and privacy concerns surrounding the big digital platforms and regulation of these platforms, the FTC and DoJ are finally (reportedly) joining the fray to initiate probes in relation to possible anti-competitive conduct by the big tech companies.  Some of the news reports can be seen here and here.

Ignoring competition concerns is never in the interest of a nation in the long run even if the firms bring growth and jobs to the domestic economy in the short run. This is therefore a positive development and would hopefully spur more efforts on the part of digital platforms to self regulate too.

One of the areas of investigation will be Google's dominance in online advertising,

The EU has brought three cases against Google, including how it ranked shopping-comparison sites in search results, requirements for how customers use its display ads network, and its practice of requiring phone makers that used its Android software to pre-load those phones with other Google apps.

Google, Facebook and Amazon will also probably be under scrutiny for the manner in which they use data acquired from customers as also competitors. There have been several probes against Facebook's data collection and privacy practices. As regards, Amazon, already,

The EU is investigating whether Amazon uses data about the third-party merchants who sell on its retail site to give the company an advantage when it sells its own products. 

My previous comments and presentations can be seen here and here and under the labels big data, data protection and competition.

International Cooperation on Regulation of Digital Markets

I am sharing a contribution I had made during a meeting in relation to the UN's Digital Cooperation Initiative at New Delhi. I had stated that, today the old regulatory silos of  telecom (networks and services), IT (OTTs, internet content, cloud computing, cyber security etc.), financial services (e-payments), Information & Broadcasting (content)  etc. may actually be  impeding the efforts of governments across the world to address challenges emanating from digital economy. This is particularly relevant for developing countries.

Addressing the digital divide requires a holistic approach addressing both supply (infrastructure and services) and demand side (skills capacity building) initiatives. Then, there are many challenges emanating from e-markets such as data collection and processing, complex competition and consumer protection issues (e.g. those arising from market power of large e-platforms), which particularly developing nations may be ill equipped to deal with. This is all the more pertinent  given that developing country markets are among the biggest sources of data and revenue for the large global digital players but need capacity building to tackle these complex issues. This calls for international cooperation. Not only will the lack of uniformity in international approach harm the growth of digital markets which cut across borders (for e.g. mismatched approaches towards data protection, taxation and competition law), the lack of capacities can also be harmful from view point of exploitation of consumers.

This calls for global consensus on standards, principles and practices. As a senior  officer from the telecom department, I have participated in ITU deliberations and often seen how such bodies despite their tremendous contribution are handicapped by the aforementioned silos when it comes to progressing discussions on complex issues surrounding digital markets. Thus, while the ITU has been discussing data protection and privacy, OTTs and competition issues during the deliberations of the current cycle of ITU Development Sector's  Study Group 1, and I have personally made contributions and presentations on this matter, we are also stymied by issues of mandate.

As a method of dealing with the above mentioned challenges, I would like to suggest that the  UN could in fact help by encouraging nations across the world, to create an informal yet international body to address these challenges. From my experience of heading the Mergers & Acquisitions work at the Competition Commission of India and co-chairing the International Competition Network's (ICN) Merger Working Group with Canada and the EU,  I would highly recommend  the  model followed by the ICN. 

It is  an informal yet effective  institution  which does not make rules but arrives at best practices which member states are free to adopt. It is a professional, global organisation led by national governments (competition regulators). It is focused on real world competition issues and is relatively free from bureaucracy. It covers almost every facet of competition law  organised into relevant verticals. It has active participation from NGAs and academia and has contributed tremendously to voluntary internationally accepted standards, consensus building and capacity building and  has  promoted global business by facilitating  multi-jurisdictional competition compliance. At the same time it has served as a valuable forum for learning, collaboration, exchange and capacity building.

This model can very usefully be adapted to suit the multi-faceted needs of digital cooperation.