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.