The Dawn of a New Era in the Saga of Digital Transformation; Some Things Never Change!

This is a work in progress and the theme of my working paper. I am sharing my thoughts and would love to hear yours.

Global Digital Transformation began with landlines and is an ongoing journey that traversed mobiles, the internet, and social media. Now we have highly sophisticated virtual worlds with Augmented Reality, Mixed Reality and Immersive Gaming, and the Metaverse is our future. It is remarkable that at every stage, there was a new technology waiting in the wings - beguiling to customers but a threat to incumbents who sought to acquire it, impede its progress or crush it.

Having viewed this journey from every angle as a policy maker, programme implementor, regulator, public policy professional, legal advisor and professor. I find it piquantly thought-provoking that many stakeholders and the incumbents are either oblivious or ignore the writing on the wall. 

Would things be different if they genuinely acknowledged and adapted rather than resisted the onslaught of innovation, competition and regulation? Let me explain that slightly enigmatic comment.

Regulation is always playing catch up with technology. That is the way of the world. There is a good reason for this. Very recently, in a discussion with a brilliant gaming mind, I realised that much as we might want to preempt and correct every consumer harm or anti-competitive conduct, regulators cannot afford to get it wrong. I am a staunch believer in eschewing market interventions unless they are needed and carefully calibrated to rectify distortions without collateral damage. Simply put, it is safer not to regulate than to over-regulate or regulate in haste. 

Thus, regulators take their time to gather information, analyse the impact of new technologies, consult stakeholders and conduct impact assessments. In the interim, the parties aggrieved by incumbents' harmful or anti-competitive conduct go to court, and a wealth of illuminating jurisprudence helps regulators bridge the information asymmetries. (The gap that incumbents strive artfully to foster and preserve). 

Finally, comprehensive consumer and competition-friendly regulation emerges to curb harm and clip the wings of powerful incumbents. The new technology can now flourish. 

However, the seeds of the next cycle have already been sprouting. The innovators or challengers are not all equal. While battling incumbents' tactics to suppress them, some had already grown relatively large and popular. They are the ones who were keeping courts and regulators busy fronting the resistance. They now truly take off. 

Compared to their counterparts, they have the advantage of time, consumer numbers, loyalty, and better ideas, and regulators see no reason to curb their growth and monitor their conduct. In any case, so busy was the regulatory machinery tackling the present incumbents that they paid scant attention to and did not fully understand or could not entirely anticipate the more disturbing aspects of the new technology. If they try, information asymmetries and doubts nurtured by the new incumbents keep them hesitant. 

When they do act, harmful behaviour has already played out, another novel innovation is struggling on the sidelines, and the cycle repeats itself. Sounds familiar?

India Mobile Congress 2020
 Shaping Sustainable Digital Future through Telecom and Technology
10.12.2020

Here are my interventions at this event as a panellist: 

A. On the subject of How Digital Communications can contribute towards the achievement of SDGs and is there any change in perspective on account of the pandemic.

If there is one thing that we have learned from the ongoing pandemic it would be that digital connectivity is absolutely essential. In a situation where you are physically separated and distanced only digital connectivity can ensure business continuity and socio-economic stability and growth. Work from home, study from home, shop from home, remote monitoring of health and logistics and smart factories etc., all these are impossible without quality connectivity.

Further, the pandemic has also underlined that this inevitable requirement of digital connectivity also exacerbates the implications of digital divides. The digital have nots really suffer. The efforts of the Government to reach out and alleviate the problems of people in crisis too can be frustrated if they are not digitally connected.

I can tell you that post the pandemic, there is a strong and renewed emphasis on both tapping ICTs for better citizen services, health and education, logistics and agriculture etc. and also on universal digital connectivity.

Even in the absence of the pandemic, there has been a huge emphasis on digital connectivity & ICT as is evident from the vision of Digital India and the Government’s emphasis on digital financial inclusion, digital identity, digital education and health, the Direct Benefit Transfer Mission and the underlying ICT infrastructure. Now we have a new Digital Health Mission and a commitment to connect all villages with fibre.

The release of the National Digital Communications Policy in 2018, the emphasis on BharatNet and the launch of the National Broadband Mission are all on account of the clear relationship between ICTs and the achievement of SDGs be they related to poverty or equality, health or education, employment or environment.

Telecom penetration has multiplier effects across the economy and in an increasingly digital future, it will be critical to enable expeditious achievement of SDGs. Each line of action to achieve an SDG has a digital counterpart. Thus if regional disparities are sought to be reduced by targeting 115 Aspirational Districts, The Deptt.  of Telecom has special schemes to provide connectivity to the Aspirational Districts. This is because ICTs are fundamental for other government efforts to fructify.

 And of course all the SDGs are related. Thus, smart agriculture and logistics can help to end hunger, digital health and education can directly impact the related SDGs but also end poverty and reduce gender disparities. Better land and water management through ICTs and sustainable development through smart grids can help reduce natural disasters which otherwise aggravate poverty and inequalities.

Digital connectivity is a great transparency enhancer and can give citizens a voice and provide a much-needed feedback loop to inform policymaking. It can thus empower citizens and strengthen justice.

In particular, I am a great believer in the power of digital connectivity to reduce inequality and bring about gender parity. We have heard of the adverse impact of the pandemic on women. Women’s education, employment and safety can all be greatly enhanced through digital connectivity. Even today, female ownership of mobiles or digital literacy is very low. Further, accessible ICTs hold great promise for persons with disabilities are needed to care for the aged especially in situations like the ongoing pandemic.

 B.  On What can be Done to Hasten Connectivity?

There are many fronts on which this problem is being tackled and can be tackled.

First connectivity must be universal. We still have a very skewed penetration. Rural broadband penetration lags at around 30% of the population and even teledensity is less than 60%. Then as mentioned earlier there is the question of equal access for women and Persons with Disabilities. This requires affordable devices, accessible devices and digital literacy.

Second is the quality of our broadband. We still lag behind on speed. We have an average speed of about 12MBPS against an ambitious target in the National Broadband Mission of delivering  50 MBPS.

There are major problems in the deployment of telecom infrastructure due to Right of Way issues. These need to be tackled. At present less than 40% of our towers are fiberized and we need many more towers. The national Broadband Mission aims to almost double the number of towers. Adequate spectrum must be made available to improve quality and allow for new technologies and innovation.

 If we are to tap the benefits of 5G, Artificial Intelligence, robotics, augmented reality and Virtual Reality to make use of innovative new applications across socio-economic sectors we need to address these issues. New telecom technologies have very different deployment architecture and the regulatory the environment must keep pace.

 Then we have an over-reliance on terrestrial communications and especially mobile broadband. We need multi-modal connectivity for redundancy and ubiquity. We cannot expect to provide broadband connectivity to 100% rural and remote areas through only terrestrial means. We must strengthen and expand our satellite broadband sector.

NITI Aayog is working with DoT to expedite the implementation of BharatNet through Public Private Partnership which would give a greater role to the private sector thereby also ensuring induction of the latest technology and greater uptake or usage.

NITI Aayog is similarly supporting the National Broadband Mission.

We have worked with DoT on Right of Way issues to expedite fibre rollouts and telecom infrastructure deployment. On the one hand, states and local authorities and on the other hand Central Government Ministries like Railways, Highways, Power and Natural Gas, Environment and Forest etc. need to accept the criticality of telecom infrastructure and actively facilitate its roll out.

As a part of the National Broadband Mission, DoT is creating a Broadband Readiness Index for states which would measure infrastructure availability and positive policy environment and this should hopefully sensitize them in this regard.  Broadband for All is a national imperative.

 We are also aiding them to open up the satellite communications sector so as to spread broadband to rural and remote areas, ensure robust multimodal connectivity and to tap the full potential of IoTs and location based services.

The whole regulatory environment for telecom needs to be conducive to greater investment, innovation and rapid deployment.  

There needs to be considerable simplification of the licensing regime. Greater ease of doing business and a more technology-neutral approach are the need of the hour.  Complicated ex-ante systems need to be replaced with Trust based authorizations combined with effective deterrence.

A case in point is the recent very progressive change in Other Service Provider Licensing regime which will greatly benefit our IT services sector and facilitate remote working. This was a case of the pandemic highlighting the need for changes which may otherwise have taken a long time to materialize.

We should use this crisis to bring about many other such reforms. For example, the pandemic highlighted the need for online recharges, universality of smartphones, and nationwide ration cards and subsidy transferability.

I believe that India’s Universal Service Obligation Fund too can be used to much greater effect to encourage infrastructure creation and innovative new schemes for universal broadband connectivity. Its Rules allow for this and it has the required corpus.

The pandemic has also heightened the need for secure and resilient communications which means enhancing our presence in global supply chains and greater participation in IPR and standard-setting as far as advanced telecom technologies are concerned.

In summary, I can assure you that while there was always a huge push towards digital connectivity and applications and awareness of their impact.There is now a strong and renewed emphasis on this critical aspect of national development.

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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.

Big Data-Competition & Consumer Protection Issues, Falling between Regulatory Stools?

I recently gave a talk cum Presentation  during the  Forum on Challenges in the digital environment 2018, organised by the Instituto Federal de Telecomunicaciones on November 7-8 at 2018, Mexico City. It can be viewed here.

This presentation draws attention to the competition and consumer protection issues (such as privacy and discriminatory pricing) arising from the exploitation of big data and the fact that many of the concerns appear to fall between regulatory stools in the sense of not being easy to fit into any particular regulatory mandate, be it the competition authority or the consumer/sector regulator or the data protection regulator.

Economic and Regulatory issues in the Era of Free Services

This post is based on a presentation I made at the International Telecommunications Union. The presentation can be viewed here.

Introduction

Our lives today are greatly facilitated by modern telecommunications, the internet and various Over the Top (OTT) applications and services. By lowering costs, bringing us greater choice and innovative methods of service delivery, OTTs in particular have become an indispensable part of modern life. In the near future, newer technologies such as Machine to Machine (M2M) /Internet of Things (IoT) communications and Artificial Intelligence (AI) will confer further benefits such that we will be living in progressively smart societies. 

As can be expected, markets by themselves will not always deliver perfect outcomes and the transition to, and the management of smart societies will entail new regulatory challengers. Thus, even in the digital economy, with its multiplicity of players and where many services are delivered free at times rendering price irrelevant, both as an indicator of market power and as a regulatory tool, the role of regulation will continue to be vital.  

From a regulatory viewpoint, it will be important to protect innovation and competition and to empower customers through good regulation and greater transparency, so as to build trust in new applications and services. These are prerequisites for continued growth of new technologies, without which, the trend towards smart societies will not be sustainable in the long run.

In an increasingly converged environment where all types of services (not just communications) are facilitated by ICTs, it would be impossible to regulate without collaboration between the ICTs regulator on the one hand, and the competition regulator, data protection authorities and a host of sector regulators on the other.

Smart societies will call for a review of the regulatory approach in the areas of competition, security, quality of service (QoS) and interoperability and also demand much greater attention to inclusiveness, privacy and data protection, transparency and trust. 

In the era of OTTs, IoT and AI, some of the important areas engaging the attention of ICTs regulators across the world are the promotion of investment in new technologies and networks, appropriate methods of licensing and spectrum allocation, new competition issues, universal service, net neutrality, privacy and data protection and QoS. Many of these regulatory problems are interconnected.

Net Neutrality 

The issue of Net Neutrality for example, requires the regulator to express its stance on non-discriminatory treatment of internet traffic. While there may be no unique answer relevant to every regulatory context, the decision on Net Neutrality regulation will always involve examining questions of investment, competition, interoperability, transparency, trust, inclusivity etc. On due consideration of various aspects, India has taken a pro net neutrality position and forbidden zero rating of services.

Regulation of OTTs

When it comes to OTTs, the regulator while acknowledging the popularity and benefits of these applications and services must be wary of both the pressure from incumbent telecom service providers (TSPs) to regulate OTTs, and of ignoring the unique regulatory problems surrounding OTTs. The former arises in part from the asymmetric regulatory burden wherein TSPs are subject to requirements of licensing, taxation, law enforcement and security, emergency services, universal service, QoS etc., and OTTs players are not. The latter is less evident but significant. There are noteworthy competition and consumer protection issues surrounding OTTs, especially given the tendency towards creation of global giants such as Uber, Google, Amazon and Facebook. The theoretical explanation for the evolution of large, global platform operators is the reduction in transaction costs, uninterrupted economies of scale in comparison to brick and mortar firms, and strong network effects. 

Given the above, even though there are ostensibly a large number of players in digital markets and services appear to be free or relatively low priced, traditional competition problems of misuse of market power, barriers to entry, competition reducing mergers and acquisitions and unfair trade practices continue to exist, albeit in new forms in contemporary markets. This is evidenced by recent regulatory actions against global platforms in the areas of competition and data protection. 

While there may well be a call to correct the imbalance of regulatory burdens on existing operators vis-à-vis OTTs, any attempt to license/regulate OTTs must first and foremost address issues of fair competition and consumer protection, rather than focus per se on the protection of incumbents.  There may be in fact a case to move towards light(er) touch licensing regimes for both types of operators wherein the focus is on innovation, investment, security and consumer protection. Any decision on licensing will have to take into account taxation issues too. The positive multiplier effects of telecom penetration and digital services which tend to increase Gross Domestic Product (GDP) and hence, the tax base may justify less focus on direct levies and greater reliance on general budget for funding universal service interventions.

Regulation of M2M/IoTs

When it comes to licensing M2M / IoT operators it must be noted than many of these are not necessarily communication service providers. Apart from the danger of over regulating too early in the life cycle of this new technology area and thereby hampering innovation, there is also the question of regulatory burden and cost entailed when the number of players is so large. Added to this is the complexity of regulating entities which serve so many different sectors such as energy, transportation, health and agriculture etc. This is a challenge which calls for cross sectoral regulatory collaboration and newer, flexible regulatory approaches. India has recently decided on a policy approach which combines light touch licensing and cross sectoral regulatory oversight.

Privacy & Data Protection

An unquestionable facet of our lives in smart societies would be the threat to privacy and security of personal data emanating from the large scale disclosure and collection of data on a daily basis thanks to our digitally connected personal devices, homes and cities etc. As technology becomes increasingly pervasive and intrusive, timely legal and regulatory interventions to protect privacy and personal data become critical. This is not just a political, strategic or ethical issue, it is also important from the business perspective of consumer demand. In the absence of adequate protection of their rights to privacy and control over their personal data; in the absence of consumer trust; consumers will cease to subscribe to even the most innovative or useful applications. This would not only adversely affect the profitability of the digital communications industry, it would also impede further innovation and the scaling up and sustained growth of new technologies and applications. Such a scenario would deprive the world of their benefits. This requires industry and governments to come together to ensure adequate regulatory safeguards, privacy by design and to promote consumer awareness.

In fact, it is widely acknowledged that data is the hidden cost of free services and the new source of market power of Apps and digital platforms.  Going forward, the regulation of data shall occupy the attention of not just data protection authorities, but also ICT’s’ regulators, competition regulators, law enforcement authorities etc. From a competition viewpoint, data portability and anonymized data sets could be remedy the monopolization of data.

Competition

Data as a source of market power is also closely linked to contemporary issues of competition regulation as in multi-sided markets, it is consumer time/attention/data that attracts advertisers who are the major source of revenue for digital service providers. This is turn makes cross-platform operators who can accurately profile customers based on their consumption of email, messaging, banking services, transportation, social media and shopping services etc. very powerful and with market power comes the possibility of its abuse. While ICTs and competition regulators have recently started examining platform to business practices, there is in fact a need to review competition regulation of digital services on many fronts. The definition of markets and sources of market power are all changing and much more information about newer markets will need to be collected for a better understanding. This calls for partnership and cooperation among all stakeholders.

Conclusion

It is important for regulators to collaborate, learn, adapt and be flexible. It is also important for industry to bridge information asymmetries, to build consumer trust and to work together with regulators to ensure the continued growth of digital services in a manner that benefits all stakeholders.

Privacy & Data Protection-Not just a National Issue

This post seeks to draw attention to the important issue of privacy and data protection regulations, the need for sharing of best practices among regulators and international harmonization of rules.

New technologies like OTTs, IoT, Artificial intelligence etc. are already and will continue to improve our lives. However, they also entail the collection of vast amounts of data about us. There is a need to balance the benefits of big data and the threat to the right to privacy which is an integral human right.

This is not just an important issue for individuals and governments; it is also critical for businesses as they rely on continued consumer demand. In the absence of adequate protection of their rights to privacy and control over their personal data; in the absence of consumer trust; consumers will cease to subscribe to even the most innovative or useful applications. 

This would not only adversely affect the digital communications industry. It would also be tragic from the viewpoint of continued innovation and the  scaling up and sustained growth of new technologies and applications. Such a scenario would deprive the world of their benefits.

India is in the process of framing its laws on the subject of privacy and data protection. It is felt that especially developing countries could benefit from mutual learning and experience sharing. 

Further, it is important for industry, regulators and academia to come together to achieve the stated objectives of data protection, privacy, competition and security so as to ensure inter alia the continued growth of digital services in a manner that benefits all stakeholders. 

Developing an appropriate regulatory framework which will act as the foundation for good business practices and adequate consumer safeguards in the field of ICTs requires collaboration and international cooperation. The international harmonisation of these rules is necessary to protect competition and innovation and to allow data to be used fairly for innovation and growth in a  competitive manner-preventing monopolisation by a few entities. This requires consensus building on data portability and localisation rules. 

ICTs & SDGs: Sound Policy & Regulation required for beneficial effects of ICTs

I was deeply impressed with the ITU Publication 'ICT-centric economic growth, innovation and job creation.'

This book has many takeaways. My favourite ones are as follows:

The  publication captures the essence of the undeniable linkages between ICTs and the SDGs. It is both comprehensive and contemporary covering various aspects such as the digital divide, innovation and latest technologies and their connection with sustainable development

In particular, I  support and underline the contention in Chapter 2 that highlights that more emphasis needs to be placed on addressing inequalities in access and usage of ICTs between people and regions which if left unaddressed will exacerbate all other inequalities in development, growth and quality of life over time adversely affecting the progress in realizing the SDGs. The stress on ICT related Targets in SDGs (table 1.) is very important. The measures contained in sub goal 9c must include all disadvantaged persons including Persons with Disabilities (PwDs).

In this context, while governments have a very important role to play, the way forward is a multi-stakeholder model wherein private sector, academia and civil society are actively engaged and involved by governments. I wholeheartedly endorse the importance of good regulation that encourages and facilitates private sector innovation and government support (through inter alia innovative use of Universal Service Funds) to empower the poor, women and PwDs etc. such that they are provided the benefits of ICTs. 

The multi-stakeholder partnership model described in Appendix A to Chapter 2 is very relevant and tried and tested in India in its Sanchar Shakti project  for access to Mobile Value-Added Services for rural women. 

Chapter 4 with its emphasis on a conducive institutional and regulatory framework is highly relevant especially for policy makers and regulators in developing countries. Competition, liberalisation and innovation go hand in hand with sustainable growth. In particular, the trade-off between short term gains and long-term harm caused by policy decisions impacts all sectors including ICTs and has a very important bearing on achieving sustainable development. 

I also appreciate the stress on the capacity of ICTs to empower citizens by providing information and a feedback mechanism to express their views and preferences. The sections on competition, consumer regulation and State owned Enterprises (SoEs) are very well written and pertinent. Competition, credible governance, universal service regulation, privacy and data protection can have a critical impact on, long term growth of ICTs and hence overall socio-economic development given the intricate linkages between ICTs and the SDGs. This is an important precondition for overall balanced growth in international context.

Chapter 5 speaks about new data driven business models based on sharing and personalisation in the context of increasing growth of IoT, multi-sided platforms and the App economy, highlight the need for focus on  important issues such as privacy and data protection and cyber security which are critical to consumer protection, trust and hence uptake of ICTs and their continued contribution to sustainable development.

Arguing Against Net Neutrality for the Wrong Reasons

Off late opponents of Net Neutrality (“NN”) are using a new line of reasoning to convince regulators and policy makers, especially in developing countries, that NN is detrimental to socio-economic welfare of their constituents.

This belief rests on the fact that over-the-top (“OTT”) players are allowed to provide tax-free and uncontrolled access to consumers of their services (internet telephony, messaging, content etc.), while riding on the networks of tax-paying and regulated telecom service providers (“TSPs”). Consequently, such OTT players are depriving the government of revenue which can be used to expand networks and bridge the digital divide. To elaborate, this standpoint propounds that OTT players are snatching revenue from incumbent TSPs, depriving them of any incentive to innovate, improve their networks and expand into remote, unconnected areas. NN Rules which do not allow TSPs to impose differential charges on OTT players or favour their own in-house OTT services, and forbid them from earning revenue from exclusive deals such as through zero rating, reduce such TSPs to dumb pipes, commodifying them. When TSPs lose the ability to differentiate themselves and their profit margins shrink, they may stop investing as much; expansion of the telecom network will slow down or stop. Revenue from license fees and universal service levies which are often imposed as a percentage of TSP revenues will decrease. Bridging the digital divide will become challenging as universal service funds dry up and private networks don’t have incentive to expand.

Further, there are issues of security and privacy surrounding unregulated OTT access and the fear of  unregulated foreign OTT giants dominating the communications sector. 

This reminds me (in a convoluted way) of the arguments that were used by wire lines service providers (many of which were state owned incumbents), to convince regulators to subsidise them and tax the then new kids on the block – the mobile service providers. It was argued that the former were serving the rural areas and providing cheap services while the latter were catering to only the elite clientele who could afford mobility. As it happens, many governments did accede to this demand. However, as we know, it is mobile services that proved to be more cost-effective and it is mobile services that grew exponentially and finally connected the unconnected- something that the protected wire lines never could achieve.

The history of telecom has and always will record how disruptive technologies continuously breed both new innovative challengers and new incumbents, and how consumers continue to benefit from these welcome revolutions. However, as new technologies also come with potentially harmful aspects (e.g. security and privacy concerns), the stakes are high and governments, regulators and policy-makers must proceed carefully. 

It is important to protect national and consumer interests in terms of assuring secure communications, lawful interception and privacy of data, and to guard against the creation of new monopolies. But the reasons for regulating OTT players should be these, and not the misguided notion of protecting incumbents to expand networks or the preservation of existing sources of revenue.

The creation of a level playing field requires that the Government look simultaneously at easing the regulatory burdens on incumbents and bringing OTT players within the realms of regulation and taxation, without harming innovation or competition. The need of the hour is the progressive movement towards an evolved and lighter mode of regulation. This should be done gradually by easing the regulatory burden on TSPs while slowly bringing OTTs within the ambit of regulation without stifling innovation. A good example is Singapore’s class license which is a deemed license for internet content.

New forms of regulation would also entail building in security by design and through technology itself, and focusing on consumer education and awareness to empower consumers. One example is simpler, more transparent methods of ensuring consumer consent to guard against misuse of personal data coupled with consumer education.

When considering real or hypothetical revenue losses from existing sources, it is important to factor in the the OTT/application-based eco-system's (Uber, Airbnb, local Ola, Flipkart, OLX, Paytm etc.) overall contribution to a country’s GDP by way of  new markets, employment opportunities and decreasing transaction costs. In fact, the most economically efficient (and least market distorting) method of funding universal service is through the budget, rather than sector specific taxation.Thus, the reduction of revenues from telecom levies if offset by overall increase in budgetary resources requires a rethinking of methods of funding Universal Service rather than measures aimed at protecting incumbents which would end up hampering growth of OTTs, 

NN ensures that the internet continues to grow and flourish as a source of innovative, new services and provides a platform where consumers are free to choose and markets free to respond to this consumer choice. 

The new-age telecom regulator has to evolve sophisticated regulatory models that place the onus of compliance on the regulated (e.g. industry Code of Practices), and deter noncompliance through swift and exemplary punishment. The new-age telecom regulator should ideally be a converged regulator that handles IT, telecom, broadcasting and content, and collaborates effectively with other regulators such as the competition regulator to ensure that every part of the new OTT eco-system remains competitive (see for example, competition cases against Google) and a range of other regulators (health, financial services, data protection etc.), to ensure that the increasing volume of online transactions does not endanger individual safety, privacy or national security. 

The answer certainly does not lie in dismantling NN thereby killing the 'Goose that Laid the Golden Egg,' because of misguided notions of protecting incumbents’ revenue or the incumbents themselves. 

A similar approach is needed when considering regulation in other contemporary areas of ICTs such as internet telephony or the Internet of Things.

TRAI's views on Predatory Pricing

TRAI in its recent Telecom Tariff Order (TTO) dated 16.2.2018 has sought to lay the grounds for ex ante determination of dominance and predatory pricing and in the process, linked it to the concept of Significant Market Power (SMP).

I had  in my earlier blog post titled 'CCI, TRAI and Regulation of Predatory Pricing'  written that,

the concepts of Significant Market Power in telecom regulation mostly apply to ex ante regulation of bottleneck facilities such as EU's erstwhile regulation of leased lines. This concept based on percentage of ownership of resources is simplistic and too crude to handle a complex issue such as predatory conduct / abuse of dominance.

It is generally understood that given the existence of a Competition Regulator namely, Competition Commission of India whose jurisdiction includes telecommunications, TRAI's role is ex ante facilitation of competition; CCI's role is ex ante as far as merger control/review is concerned but ex post as  regards anti-trust matters such as abuse of dominance including predatory pricing.

However, though in its consultation paper TRAI had quoted from EU law to state significantly that, market definitions for the ex ante regulation of the electronics communication sector would differ from markets defined in individual competition law cases as the purpose of the former is an overall assessment of the structure and functioning of the market under examination to determine whether or not to impose ex ante regulation, the Telecom Regulator has not perhaps appreciated the EU stance/international norm properly. 

In fact an EU working paper states that,

Under the Framework, the definition of relevant markets and the assessment of significant market power should be based on the same methodologies as under EU competition law. This ensures that it reflects the applicable jurisprudence of the Court of Justice of the European Union and the Commission Notice on the definition of relevant markets for the purposes of Community competition law ....When NRAs consistently apply established methodologies to define markets and assess significant market power, they contribute to ensuring regulatory predictability and limit regulatory intervention to cases of market failures identified by analytical tools......

........Similarly, the designation of an undertaking as having significant market power in a market identified for the purpose of ex ante regulation does not automatically imply that this undertaking is also dominant for the purpose of Article 102 of the Treaty or for the purpose of application of Council Regulation 139/2004 or similar national provisions. Moreover, a significant market power (SMP) designation has no direct bearing on whether that undertaking has also abused a dominant position under Article 102 of the Treaty. It merely implies that, within the scope of Article 14 of the Directive 2002/21/EC, from a structural perspective, and in the short to medium term, in the relevant market identified the operator has and will have, sufficient market power to behave to an appreciable extent independently of its competitors, customers, and ultimately consumers.....................................................In this respect, ex ante obligations imposed by NRAs on undertakings designated as having significant market power aim to remedy market failures identified and fulfil the specific objectives set out in the Framework. On the other hand EU competition law instruments serve to address and remove concerns in relation to illegal agreements, concerted practices or unilateral abusive behaviour which restrict or distort competition in the relevant market.

This paper also states that,

...The SMP Guidelines do not in any way restrict the rights conferred by EU law on individuals or undertakings. They are without prejudice to the application of EU law in general, and of competition rules more specifically, and to their interpretation by the Court of Justice of the European Union. The SMP Guidelines do not prejudice any action the Commission may take or any guidance the Commission may issue in the future with regard to the application of EU competition law.

This key aspect is ignored by TRAI when equating a primarily structural analysis in terms of ex ante definition of Significant Market Power ( to decide whether to impose tariff restrictions or open access requirements etc.) with a different concept of abuse of dominance (which is essentially an anti-competitive  'conduct') as a precondition to determine predatory behaviour which is internationally the subject matter of competition law and involves mostly ex post analysis by the competition regulator. There was really no need for TRAI to foray into the domain of  Competition Commission of India which is well equipped to deal with cases of predatory pricing. Certainly TRAI would not be in a better position than CCI to determine intent which is a complicated exercise.

Another  interesting aspect of this TTO is that of TRAI  dismissing without adequate explanation the other criteria of arriving at determination of SMP in a market,  namely, switching capacity and traffic volume. Thus if a Service Provider has the lion's share of switching capacity/infrastructure  and then proceeds to use predatory pricing to drive out its competitors and acquire their customers, this would not amount to predatory behaviour based on  ex ante measurement of dominance in terms of market share by subscribers/turnover.

Finally, it is again reiterated that determination of relevant market to establish dominance is far more nuanced than methodology laid down by TRAI based on market share and the present licensing regime. It would have been better if TRAI had consulted CCI on the matter and ultimately left predatory pricing to the latter.