Why worry about IPTV?

Why worry about IPTV?

Last week, telecom regulator Trai issued a position paper on Internet Protocol Television (IPTV) and submitted it for stakeholder feedback. The paper suggests that Trai is close to a final view on several key issues, especially market entry.

Trai observes (sic) that IPTV services be open only to telecom access providers (‘telcos’) and cable TV operators. The importance of this paper, however, is less to do with IPTV, its immediate subject—it gives away Trai’s approach to new services and markets beyond conventional voice telephony. Here and elsewhere recently, Trai’s pronouncements make it out to be a wimp, struggling to enforce robust competition between players and technologies. Importantly, its approach will facilitate an outcome enlightened international regulators do much to avoid, i.e., enable companies that own infrastructure to dominate newer markets.

IPTV is a niche product. It is often confused with Internet TV or video delivery. IPTV—though based on Internet Protocol (IP) technology that powers the Internet—is a closed user system unlike websites that allow users to access and play video signals. IPTV operators would, typically, buy rights to one or more entertainment channels and offer subscriptions to users much like cable, or DTH operators do. The services are not a simple or cheap extension of the existing telecom or cable TV network. Telcos would need partners with money and specialized knowledge of the entertainment business and cable operators, more sophisticated interactive networks. Technology standards and equipment features could make or break businesses.

There are about 14 million IPTV subscribers worldwide. Industry estimates—echoed in the paper—project about 60 million IPTV subscribers by 2010. Use seems heavier where cable and satellite TV coverage is patchy. The take-up in the US is modest. The 16% growth in subscribers last year looks less impressive against the small subscriber base to begin with. In addition, there is evidence that most IPTV use takes place in offices and other environments where traditional TV services are not usually available.

Even if the IPTV subscribers projected for the entire world were to be in India, they would make for a very small number. IPTV, by itself, is thus hardly an important concern for public policy. So, most regulators would adopt a hands-off role limited to ensuring all players and technologies can enter the market and live or die (or coexist, as personal computers (PCs) and Macs do admirably despite vast differences in market share. They would consciously avoid picking winners—players, technologies or standards—prematurely.

Owners of telecom or cable networks own important infrastructure, which will be a critical element of their IPTV strategies and will give them a commercial edge over rivals. Nobody will grudge them that. However, if this enables them to control the growth of services that can be provided using their infrastructure, it would be akin to road owners determining what vehicles could be on the road. Regulators worldwide—especially the European Union—ensure that infrastructure owners do not create bottlenecks to competition. Robust legislation mandates that owners of “bottleneck facilities" provide competitors access to their infrastructure (and at wholesale prices to allow them to compete for the same end-customers).

Regulation today must be based on function, e.g., broadcasting, mobile telephony, and not technology, e.g. wireline, wireless, GSM, CDMA, etc., or industry nomenclature. However, Trai’s commitment to this technology neutrality and robust competition is feeble. In recent months, its recommendations on Internet licensing and spectrum have created new distinctions, and fortified old ones that favour infrastructure owners and will further the role of bureaucrats. Against overwhelming evidence that small Internet players have drastically lost market share to telcos, Trai has recommended that ISPs offer a more restricted—therefore uncompetitive— form of Internet telephony than telcos. Most relevant to this discussion, Trai has recommended that ISPs not offer IPTV. Services provided by ISPs across the world are closed to Indian ISPs on grounds that virtually no regulator would accept, namely that the low fees imposed on ISPs earlier enable them to compete unfairly with telcos thousands of times bigger than themselves. Trai’s recent recommendations on spectrum allocation still deny parity between CDMA and GSM technologies of comparable functionality, which compete fiercely across the world. Its recommendation that spectrum be allocated on a first come first served basis—without demonstrating need or efficient use—has caused a mad rush of speculators to grab precious spectrum. The need for sound economic regulation, technology neutrality and fair competition remains. Trai’s documents seem not to recognize the gap.

Mahesh Uppal consults on regulatory affairs and has advised many stakeholders in the telecom market. Comments are welcome at theirview@livemint.com