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.

Mexico Earthquake-Lessons for Indian Authorities and Indian Telecoms

On the afternoon of September 19, 2017 Mexico City was struck by an earthquake of 7.1 magnitude that injured thousands, rendered thousands homeless and killed more than 200 people in and around the city. This earthquake was preceded by one in Chiapas, Mexico, twelve days earlier, that killed 100 people. Ironically the city had in fact commemorated at 11 AM on September 19, 2017 the terrible 8.1 magnitude earthquake of 1985 that also occurred on September 19, and killed 5000 people apart from causing widespread damage to property.  

As luck would have it, I was flying towards Mexico City on 19.9.2017 when the earthquake struck. As the Benito Juárez Airport was temporarily shut down, our airplane was diverted to Houston, Texas till it got clearance to land in Mexico City. By that time, about 7 hours had past post the occurrence of the earthquake. My colleague and I had some difficulty finding a hotel as the one we had a booking in had been evacuated. My first night there was disturbed by evacuation drills which the authorities had ordered and there was no air-conditioning. I could hear sirens throughout the night. However, even so, I was amazed at the calm I saw around me. The electricity was up as were the telephone lines and internet. 

The next morning, we visited the venue of the conference we had traveled to attend and as expected under the circumstances, we found that it had been cancelled. The Government had declared a national emergency. A tour of the city revealed that while there were relatively few cars and pedestrians to be seen, the city was quietly gearing up for rescue / relief work. I saw many volunteers walking, moving in cars and aggregated in and around the Zocalo or Main Square, where water and other rations were being organised. Even as the television relayed videos of the desperate ongoing efforts to rescue people trapped under collapsed buildings, in general, for a capital that had just been struck by a major earthquake I found that people were calm and there was no sense of panic or chaos, at least in the areas I had visited.

Reportedly,  as per preliminary estimates the cost of the damages may be around USD 2 billion. Its going to be a long haul for Mexico as far as reconstruction and recovery go, but it is well prepared. The government has already started making electronic transfers to the victims. I had in fact studied Mexico’s Disaster Funding as a part of my work at the National Disaster Management Authority of India.   India has statutory funds created for disaster relief and immediate rehabilitation (The National and State Disaster Response Funds (NDRF & SDRFs)), and has a statutory provision for a National Disaster Mitigation Fund (that has not been created), but unlike Mexico, India lacks a dedicated funding mechanism for post disaster asset reconstruction. Thus, in India, reconstruction would invariably come at the expense of forgoing other committed expenditure, including that earmarked for developmental activities. Further, the Indian Government does not tap into risk transfer through insurance of public assets or through reinsurance mechanisms. India is vulnerable to both water and climate related disasters as well as geologically related disasters. As indicated in the below mentioned Discussion Paper, a Lloyds study (2004-11) finds that 85% of disaster related losses are uninsured in India. The overall low penetration on non-life insurance generally implies dependence on government funding /subsidies in the aftermath of disasters and eventually, this translates into a burden on tax payers.

In contrast, Mexico has a comprehensive ex ante mechanism for funding post disaster relief and reconstruction by way of the FONDEN, apart from a funding mechanism for mitigation through FORPDEN.

FONDEN’s operation relies on a clear framework for damage and loss assessments, resource allocation, funding channels and implementation timelines between federal and state government agencies after a disaster. This allows the Government of Mexico to manage emergency response and reconstruction funds with efficiency and transparency, while generating trust and discipline…..[b]y Law, FONDEN and its related funds (FOPREDEN and CADENA, a vehicle for agricultural insurance) must receive no less than 0.4 percent of the annual budget (around US$800 million in 2011), including any uncommitted funds in the Trust from the previous fiscal year. 

As funding requirements can vary, apart from risk retention by way of above mentioned budgetary allocations, FONDEN is also allowed to pay risk premiums towards insurance as a means of risk transfer. The Mexican Government has also issued multi-catastrophe bonds and has an indemnity-based insurance for FONDEN losses. All government infrastructure is compulsorily insured.(source GFDRR)

In India, the post disaster relief expenditure of states is often more than funding available through SDRF and NDRF. Further as stated above, the Government meets reconstruction expenditure from the general budget. In the event of a major disaster this would be supplemented by aid or external borrowing. As suggested in a Discussion Paper on Disaster Relief and Risk Transfer  that I had co-authored while at NDMA, we could allow the states to use a portion of the SDRF to buy insurance  towards relief and rehabilitation (over and above that available through the SDRF scheme) and towards reconstruction of damaged infrastructure. Further, the National Government could buy parametric insurance to safeguard against rarer, high impact disasters by using a dedicated portion of NDRF funds for insurance premium. (For further information, please read my article on the subject Reference: Gulati, Archana G., Financing Disaster Risk Reduction - The Indian Context (November 1, 2013). Presentation to the Expert Group Meeting on Effective Strategies for Mainstreaming Disaster Risk Reduction in Asia and the Pacific, Bangkok, 26-28 November 2013. )

This paper had also suggested other funding mechanisms such as compulsory disaster insurance for private homes, government property and revenue generating public utilities and extension of the scope of the existing public liability insurance to include public places such as hotels, cinema halls and other places where people congregate at events. Incentives by way of tax deduction for premiums could be provided. As the quantum of premiums would be linked to risk, compulsory insurance would also provide an incentive for disaster risk reduction or mitigation activities. This would also ensure that relief / reconstruction costs do not get passed on to the government in their entirety and that development related funds are not diverted for reconstruction activities.

Coming back to telecommunications, apart from the fact that in today's world, telecoms  are the lifeblood of economic and social activity, the government is also investing huge amounts in creation of public assets by way of Digital India and the National Optic Fibre Network. However, as per usual practice these assets are not insured. The Department of Telecommunication’s Crisis Management SOP 2017 and other disaster related documentation too are silent on funding for rehabilitation and reconstruction. Needless to say, disaster resilience of telecoms infrastructure is absolutely critical as disaster alerts, rescue efforts electronic funds transfers etc. all rely proximately on the unhindered continuation of telecoms connectivity. However, given the important role of telecoms and especially broadband in economic activity, we also need to evolve a comprehensive strategy for ex ante funding of damaged assets to avoid the adverse consequences of slow and expensive economic recovery, post disasters. This should invariably include a combination of risk retention (budgetary allotments) and risk transfer through insurance.

A presentation on the above can be viewed here.

CCI, TRAI and Regulation of Predatory Pricing

Recently there was a news item about a letter written by CCI to TRAI highlighting the role and expertise of CCI in post facto assessment of occurrence predatory pricing in any sector. This was in response to TRAI's consultation paper on Regulatory Principles of Tariff Assessment. 

This paper  seeks to address inter alia the issue of regulation of promotional offers and prevention of anti-competitive conduct in this regard.

TRAI's jurisdiction as regards telecom tariff is outlined in 

 Section 11(2) of the Chapter III of the Telecom Regulatory Authority of India Act, 1997 [that] lays down that: “(2) Notwithstanding anything contained in the Indian Telegraph Act, 1885 (13 of 1885), the Authority may, from time to time, by order, notify in the Official Gazette the rates at which the telecommunication services within India and outside India shall be provided under this Act including the rates at which messages shall be transmitted to any country outside India: Provided that the Authority may notify different rates for different persons or class of persons for similar telecommunication services and where different rates are fixed as aforesaid the Authority shall record the reason therefor.”

As brought out in the consultation paper,

 Currently, except for the tariffs for national roaming, fixed rural telephony and leased lines, tariffs for other telecommunication service are under forbearance

TRAI's recommendation (not binding on government) powers include inter alia measures to facilitate competition. 

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 predation / 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.

Yet the Consultation paper after quoting liberally from various sections of the Competition Act  including those relating to delineation of relevant markets and abuse of dominance, (inexplicably)  still seeks views of stakeholders on inter alia:

 What should be the different relevant markets – relevant product market & relevant geographic market – in telecom services? 

 How to define dominance in these relevant markets? Please suggest the criteria for determination of dominance.  

As someone who has several years of telecom policy experience and some degree of expertise in Competition law, I would agree with CCI's viewpoint that  definitions of product and geographic markets and post  facto analysis of abuse of dominance including predatory pricing are best left to CCI. The Competition regulator has sophisticated tools and relevant expertise at its disposal, as also ample experience in these matters. It would conduct analysis on a case by case basis. This would include an appropriately nuanced approach to delineation of markets rather than being tied down by rigid  definitions based on percentages and technologies which are not only too simplistic, crude and blunt, but easily rendered irrelevant and obsolete. 

A multiplicity of definitions and approaches could also create a real danger of forum shopping by service providers to avoid effective regulation of competition. In any case, the already beleaguered telecom sector in India could do with less ambiguity and more clarity and certainty on regulatory matters. 

Universal Service: Regulation, Competition and Contemporary Issues

Its been a long time since I wrote. An invitation to speak at a Conference on Universal Service in India in the context of India's broadband plan gave me the opportunity to put together some thoughts on Universal Service Regulation in India.  The use of Universal Service funding is in theory market friendly and complements liberalisation and competition. However, in practice, particularly in the context of roll out of national broadband networks, the design of USF interventions can do much harm to telecommunications sector by creating winners and losers, creating/exacerbating barriers to entry and distorting the competitive scenario. In the long run this would impede dynamic efficiency and harm the very objective of universal service.
Please see the slides here