TRAI OTT Consultation Paper: Need To Level Regulatory Playing Field, Give More Teeth To CCI, Firstpost, Vivan Sharan and Mohit Kalawatia, 06 December 2018

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https://www.firstpost.com/tech/news-analysis/trai-ott-consultation-paper-need-to-level-regulatory-playing-field-give-more-teeth-to-cci-5678141.html?fbclid=IwAR2EX0ZyTKd3Owom5sorl8i2KDgTTFJH7LU5FW_QeVG4Ia6p4VysAV8rpyE

Online service providers operate in a largely uncharted regulatory space in contrast to their cousins and progenitors in the offline world. For instance, telecom service providers (TSPs) and broadcasting linked distribution platform operators (DPOs) are licenced by the Telecom Regulatory Authority of India (TRAI), whereas applications used to communicate or distribute voice, text or video content over the internet are not. This lack of licencing or regulatory parity has led to repeated calls by traditional incumbents for levelling the regulatory playing field – particularly as their own profits have shrunk with the expansion of competing for online services.

The influence of the internet on society has also grown inexorably – best exemplified by the US Senate hearings on social media platforms following allegations of Russian interference in the 2016 elections. This, in turn, has raised legitimate questions about whether there are enough regulatory safeguards to protect users (and democracies) from vulnerabilities linked to now ubiquitous online services. Such services are also known as Over the Top (OTT) services owing to the fact that they are delivered over the public internet.

OTT services would technically fall under the jurisdiction of a regulator under the Information Technology (IT) Ministry. However, much to its chagrin, the IT Ministry has no dedicated regulator of its own. Naturally, the importance that regulators enjoy within governments the world over is directly proportionate to the size of their jurisdictions. Therefore, calls for parity from regulated entities has provided an enthusiastic TRAI with ready rationale to try expanding its remit to include OTT services.

TRAI has recently begun a process of public consultation, ostensibly on designing a regulatory framework for a subset of OTT services, that provide functionality akin to TSPs. These include OTT communication services like voice and text messaging. The origins of this process and its scope can be traced back a few years.

In 2015, TRAI had initially attempted to paint the entire OTT ecosystem with a broad brush, but the Department of Telecommunications (DoT) which has always had mixed feelings about an independent TRAI, quickly redrew the perimeter for future consultations. It essentially prioritised regulation of OTT communication services over other services such as e-retail, content and media.

At the heart of the latest TRAI consultation is whether the construct of ‘substitutability’ between TSPs and OTT communication services should be applied for comparing regulatory burdens applicable to both markets. That is if services like WhatsApp allow similar functionality to text messaging, should they not be equally regulated? Such logic can be extended indefinitely and prompt legacy approaches to regulations that may not be appropriate for digital markets.

For instance, online taxi aggregators can potentially be called substitutes to black and yellow taxis, online video providers to broadcasters, online retailers to offline counterparts and so on.

Therefore, there is merit in looking at metrics other than substitutability alone to ensure clarity of regulatory scope and compliance.

The fact is that the market impact of large OTT services should be a matter of concern for antitrust regulators globally – and this is directly related to whether OTT services and TSPs operate in the same markets. The subsequent moot question is whether they act as a substitute for each other within these markets.

To be clear, sectoral regulators like TRAI have a legitimate interest in such antitrust matters, that impact the jurisdictions they regulate. However, using substitutability as the sole determinant of future regulation deviates from the approach adopted by the nodal antitrust regulator, the Competition Commission of India (CCI).

Even-though the CCI is new to the digital economy and has limited technical expertise, its evolving determinations of relevant markets should inform the TRAI process. For instance, in a complaint against Snapdeal in 2014, it was alleged that the e-retail platform had abused its dominant market position by entering into an exclusive agreement with sellers using its platform. The CCI subsequently held that online and offline markets are merely two different channels of product distribution and do not constitute distinct markets. This was akin to the functional approach that TRAI is now exploring.

However, the order passed by the CCI in a complaint against WhatsApp highlights a sharp learning curve. In 2016, a complainant alleged that WhatsApp held a dominant position in the relevant market for ‘free messaging apps available for various smartphones globally’. The CCI held that such communication services cannot be compared with “the traditional electronic communication services such as text messaging, voice calls etc.” made available by TSPs. This is because they differ in characteristics such as accessibility (wherein the former can only be used via a smartphone), pricing models and additional functions available to users. Subsequently, even in cases against Ola (2016) and Google (2018), the CCI held that online markets differ from their offline counterparts, due to the presence of specific characteristics.

Evidently, the identification of market characteristics is a nuanced exercise with constant scope for technical improvements – something that the TRAI must acknowledge in its assessments, however preliminary.

More recently, the CCI also employed available policy definitions to determine relevant markets in a case against Flipkart. Since the IT Act provides legal recognition to all electronic communications and commerce of which OTT services are a subset, the IT Ministry should take on the task of defining various OTT services through a modern IT policy. This should ideally precede any regulatory pronouncements by the TRAI, since it is a settled principle of law that the delegated power available to regulators is limited to what is imagined under their parent legislation. Importantly, a legislature cannot delegate ‘essential legislative functions’ to a body such as TRAI.

Additionally, global best-practices can provide templates to engender greater institutional coherence between regulators like TRAI and CCI. For instance, the UK’s Enterprise and Reform Act, 2013 has enhanced the role of the Competition and Market Authority (CMA – UK’s competition regulator) and mandated consultations with relevant sectoral regulators to settle jurisdictional questions. Further, it mandates the exchange of information about possible antitrust issues across markets.

Similarly, South Africa’s Competition Commission has entered into several MoUs with sectoral regulators. Such agreements are guided by the provisions of South Africa’s competition law under which the competition regulator is responsible for negotiating agreements with sectoral regulators with which it shares jurisdiction.

In 2011, a high-level committee constituted by the Ministry of Corporate Affairs (MCA) had also recommended that India’s Competition Act be amended to provide for mandatory consultation between CCI and sectoral regulators like the TRAI. Despite this, and the increasing role of antitrust in digital markets, the CCI is an emaciated body today – without a specialised appellate tribunal and lacking full strength of its Board Members. Since yet another MCA Committee has been formed to review competition law this year, perhaps it can revisit such pending recommendations and consequently attempt to level the playing field between regulators.

The authors are technology policy experts at Koan Advisory Group, New Delhi.

"Reinterpreting public interest broadcasting", LiveMint, 09 November 2018

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Populist politics tends to lead to short-term policy goals in most democracies. This is why many economic policies aim at instant consumer gratification in India—and explains why even minimal fuel price cuts regularly make headlines. Part of the job of a responsible bureaucracy is to espouse more balanced public interest objectives. This includes acknowledging the fact that the long-term welfare of market participants such as producers and intermediaries also affects consumers. However, line ministries like the ministry of information and broadcasting (MIB) often fail to perform this balancing act for the markets they govern. 

Unenviably, the MIB functions as a licensor in a broadcasting market where there are hundreds of private operators spanning print, television and radio. The need for economic liberalization three decades ago had already confirmed that licences are inimical to market growth. Today, licencing is reminiscent of a bygone era of acute market scarcities. Additionally, the internet has rapidly democratized consumer access to content markets globally, outside of any such licencing paradigm. Yet, the MIB shows a persistent bias towards licencing-inspired interventions to stay relevant. For example, its latest rulemaking initiative may permanently distort the market for sports broadcasting in India. 

Specifically, the MIB plans to introduce a legislative amendment to force content owners to share live sports signals deemed to be of “National Importance” with the public broadcaster, Prasar Bharati, for re-transmission over private TV distribution networks. It would do so through the relevant Doordarshan channels. A public consultation document has been floated by the MIB in mid-October to this effect. 

TV broadcasts are carried to over 150 million homes by private cable and satellite distribution networks. Another 30 million homes access public-service broadcasts through direct to home and terrestrial networks owned by Prasar Bharati. The Sports Broadcasting Signals Act, 2007 (“the Act”) which the MIB wishes to amend, was promulgated to make sports-broadcasts of “national importance” available to low-income homes. Simultaneously, all distributors are mandated to carry Doordarshan channels by an older law governing private networks. Until recently, Prasar Bharati chose to employ a combined interpretation of both laws to retransmit sports broadcasts acquired under the Act through public and private networks. 

However, in August 2017, the Supreme Court clarified the obligation of content owners as being limited to sharing of sports signals for re-transmission only over Prasar Bharati’s networks. The MIB now seeks to bypass this judicial interpretation, in order “to ensure access to the largest number of viewers”. This motive is suspect because free sports programming of national interest is already made available on the airwaves under the Act. Any lack of consumption of free programming is simply a function of consumer choice in favour of private networks. It is safe to assume that households which can pay for private networks can easily put an additional dish or antenna to access free sports programming. 

Conversely, if a live signal is carried simultaneously on both paid and free TV, advertisers would naturally pay less for their time slots on private networks, eroding the margins of businesses which own the underlying content. And Prasar Bharati would see a windfall without taking any production risk because live sporting events would draw greater advertising revenues than its usual repertoire of content.

Reducing the scope for monetising privately-held intellectual property (IP) is akin to throttling the lifeline of the sports economy in India—a fact not unknown to the MIB. Prasar Bharati had negotiated acquisition of five-year rights to broadcast Indian cricket matches for a paltry sum of ₹227 crore in 1999 with the BCCI, whereas a similar set of rights were subsequently sold for about 12 times this value to a private broadcaster in 2006. A panic-struck MIB pre-empted its inability to compete in an open market, and issued an ordinance which served as a precursor to the 2007 Act. 

IP rights for broadcasting account for well over 85% of hockey and football revenues too. The growth of regional sporting leagues which has finally made sports a viable career is fuelled by similar economics. Owing to limited scope for scaling up government expenditure, most future investments in local sports be private sector driven. The global sports market is already worth around 1% of gross domestic product (GDP), whereas the annual ‘Khelo India’ cash outlay works out to less than 0.04% of India’s GDP.

Unfortunately, the creation of market value spurs predatory impulses within corresponding line ministries. Consequently, the MIB is interpreting public interest narrowly and in self-interest—by forcibly acquiring private IP for profit. Prasar Bharati barely generates enough revenue to cover its own programming costs—and is dependent on heavy grants from the MIB. Re-transmitting the IP owned by others will perpetuate this culture of handouts rather than stimulate any impetus towards creating quality public-service content. Prasar Bharati may soon become completely unable to overcome its structural deficits, like many other publicly-owned body corporates. This would leave Indian consumers worse-off in the long run, even as the proposed legislative amendment nips the growth of the nascent sports economy in the bud. 

Vivan Sharan is a Partner at Koan Advisory Group, New Delhi. These are is personal views.

Trade Policies Should Define Digital Products to Enable and Negotiate Market Access, Vivan Sharan and Mohit Kalawatia, FirstPost, 06 November 2018

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A host of export-services have gained prominence in India, especially since service providers now leverage technology to access geographically remote markets. Most of India’s prominent export-services are knowledge and skill intensive and can be delivered electronically. The delivery of such services has also garnered the attention of trade negotiators globally.

For instance, India is in the midst of negotiating e-commerce related issues within the proposed Regional Comprehensive Economic Partnership (RCEP) — a mega-regional trade-pact involving ASEAN countries, India, China, Australia, Japan, South-Korea and New-Zealand. A key issue being discussed here is the treatment of ‘digital products’ — products which were formerly delivered in tangible form but now can be delivered in electronic form.

While no international consensus has been reached, several bilateral trade agreements already define digital products. India’s own approach as with most technology policy questions has been piecemeal.

The Singapore-Australia free trade agreement (FTA) which came into force in 2003, was among the first bilateral pacts to contain trade obligations linked to digital products. Thereafter, as e-commerce provisions started appearing more frequently in trade agreements, such obligations became increasingly prevalent globally. For instance, the India-Singapore Comprehensive Economic Co-operation Agreement inked in 2005 contains provisions related to digital products. Herein, the term is defined expansively to include all services or products that can be delivered electronically. Categories of such products include audio-visual content, e-books, text services such as e-mail and software. Replicating such a broad definition in future trade agreements will implicate the wider domain of knowledge and skill intensive services.

With renewed momentum towards formal negotiations on e-commerce at the WTO, advanced countries such as the US, Australia, Japan, and Singapore are in favour of an all-encompassing definition of digital products. Conversely, in private discussions, Indian officials have raised concerns about the potential loss in customs revenues owing to new technologies such as additive manufacturing (3D printing) within the construct of digital products. As per a 1998 WTO Work Programme on e-commerce, of which India is a part, electronic transmissions are exempt from such tariffs.

Notably, existing domestic statutes including the Information Technology Act do not define digital products, and consequently, the bilateral agreement with Singapore serves as the only precedent in the Indian context. While the 2016 FDI Policy on e-commerce makes a passing mention of digital products, details on the types of goods and services which qualify as such are conspicuously absent.

To be clear, India needs to define digital products, in order to better negotiate market access for its service industries in future trade agreements. In 2017, India’s share in global merchandise exports stood at 1.7 percent, whereas its contribution to global services exports was 4.6 percent.

Notably, the World Intellectual Property Organisation’s Innovation Index, 2018, and the WTO’s World Trade Statistical Review, 2018, ranked India first and second in the export of ‘ICT-services’ and ‘computer-services’ respectively.  Additionally, the emergence of global value chains has increased opportunities for specialisation in services. Even as China continues to dominate merchandise supply chains, India can potentially position itself as a hub for services by leveraging e-commerce, including manufacturing-linked services such as design and refurbishment.

Adopting a broad definition of digital products would bring new technologies within the regulatory fold, is unlikely to yield optimal economic outcomes. For instance, circumscribing 3D printing through an entirely new policy on digital products may be premature and may inadvertently compromise the development of local supply chain capacities for the same. Perhaps a similar realisation led to the shelving of the e-commerce policy. However, the absence of trade rules on digital products altogether could mean future regulatory uncertainty for Indian service providers in accessing global markets. While there is no silver bullet, it is imperative to begin a balanced conversation on digital products in earnest.

Some useful ideas have already been put on the table through the consultations on the aforementioned e-commerce policy, conducted earlier this year. For instance, India can seek customs carve-outs for digital products which require conversion to physical form. This will address revenue concerns linked to 3D printing.

Additionally, India can adopt a ‘negative-list approach’ in tariff notifications, wherein services/goods which shall remain outside the ambit of the definition of digital products can be explicitly spelt out. This approach can also potentially enable periodic reviews of the commitments undertaken for such products under future trade commitments.

Commerce Minister Prabhu recently announced that his Ministry is formulating a comprehensive strategy to double India’s exports by 2025. This is an ambitious target which would rely heavily on the performance of 12 “Champion” export-service industries, identified under a Cabinet Action Plan in February.

If India wants low tariff thresholds to harness export markets, it will have to envision a similar reciprocal regime for service imports. Unlike manufacturing, in which India was unable to build export-competitiveness, it still has time to ensure that future trade rules align with its innate economic strengths in export-services.

The authors are technology policy experts at Koan Advisory Group, New Delhi.

"LOW COST SMARTPHONES MAKE MONEY OFF OUR PRIVACY, IT'S TIME WE FIXED THIS", FirstPost, 23 October 2018

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The digital economy is receiving a lot of attention of late. The recently approved National Digital Communications Policy 2018, an imminent data protection law, and policy conversations on e-commerce are examples of this. The public interest implications of rapid internet adoption are driving this momentum. Internet adoption displays an S-shaped curve globally – representing initial moderate growth, steep growth in the middle-phases and stable growth towards the end. The plummeting cost of data and devices seem to have catapulted India to the middle of this curve, a path of frenetic activity, and equally of heightened risks.

In many ways, the pace and pattern of internet adoption in India seem to mirror the process of urbanisation which has been equally feverish for longer. The prospects of efficiency, connectivity and progress have driven urban migration, and are the drivers of digital migration as well. A citizen experiencing in-situ urbanisation is similar to a digital native experiencing swift and inexorable technological change. Finding itself amidst such fundamental transitions, the Indian State is trying to discover legitimate levers of regulatory control, balancing consumer aspirations with the security and stability of the digital ecosystem.

This balancing act is going to be particularly hard when it comes to regulating device ecosystems. Smartphones are at the epicentre of consumer aspirations, with low-cost Chinese brands accounting for nearly 60 percent of the Indian smartphone market. These brands manage to offer hardware specifications comparable to higher-end smartphones and remain profitable despite unfavourable customs duties for equipment imports and lack of a localised components base. But there is a trade-off. Specifically, low-cost brands derive their margins by bundling applications, operating systems, and user consent – a combination that facilitates cross-subsidisation at the cost of ecosystem integrity, as explained below.

Firstly, many low-cost smartphone brands pre-bundle third-party applications that range from news aggregators to social media services. Such pre-installed software, also called “bloatware” in technology circles, not only takes up an asymmetric amount of processing memory relative to functionality, it often creates ecosystem vulnerabilities. For instance, according to a Pew Research Center study, the most common permission sought by application providers is to access information related to Wi-Fi connections. Such requests can enable access to device data from an entire network, with only one user’s permission. Digital advertising, unfortunately, thrives on such unethical collection of data. And the companies that make data-collection applications, in turn, cross-subsidise device makers. This grand-bargain of pre-bundling deprives users of any choice in the matter.

A second challenge is the prevalent practice of pre-bundling of older generation operating systems (OS) on low-cost smartphones. Again, owing to their own unit economics, smartphone makers often make important qualitative choices of behalf of unsuspecting users. This is problematic because low-cost devices running old software on cheap chipsets, often form the weakest link in interconnected digital communications ecosystems. This challenge is exacerbated by the fact that a single OS provider accounts for 90 percent of the mobile-OS market in India. Earlier this year, a comprehensive study by German researchers found that low-cost smartphone brands running this OS often failed to update relevant software patches that guarantee user-security.

Additionally, there is little monetary incentive for OS providers to indefinitely support their old products. Low-cost device manufacturers, on the other hand, benefit from installing old systems, which are naturally cheaper as the level of support offered by OS providers is minimal. Indians have already suffered significant financial harm owing to the prevalent use of outdated OS on ATM machines. Consequently, the Reserve Bank of India mandated “immediate action” to control vulnerabilities from unsupported versions of OS running on ATMs, in June this year.

Lastly, some smartphone manufacturers bundle the consent provided by users while first accessing their devices, with blanket permissions given to pre-bundled software, aggravating the aforementioned risks. India’s imminent data protection law is expected to mandate separation of such consent requests from the standard device-level service terms and conditions. Although this is a commendable step, it may not reduce take-it-or-leave-it consent propositions. This is because consumers tend to value convenience over security, expecting established brands to underwrite their security.

It is evident that disallowing pre-bundling practices may lead to higher costs being passed on to consumers. This may not be a politically acceptable outcome. Therefore, India must rely on setting requisite quality standards for smartphones. Several international templates exist for this, such as ISO-approved Common Criteria standards. However, the sheer pace of digital adoption means that enforcement of such standards will remain challenging until the requisite testing infrastructure is developed. In fact, implementation of a comprehensive regime for mandatory certification and testing of smartphones and other devices, envisioned by the Department of Telecom, has been inordinately delayed owing to this infrastructural gap. This is an opportunity for building deeper public-private partnerships for Digital India, much like Smart-Cities, and scaling up testing infrastructure. Industry must participate meaningfully in building such capacity, a process that perhaps remains contingent on the State articulating a multi-stakeholder approach towards digital economy regulation.

Vivan Sharan is a Partner at Koan Advisory Group, New Delhi. The views expressed here are personal.