Apps paying telecom firms for internet infrastructure? Reject this proposal.
Summary
- While several telecom industry stakeholders want OTT services to pay them a “fair share” of the cost of internet infrastructure, the argument lacks substance. Global examples suggest it would distort the market and leave internet users worse off.
The three-day India Mobile Congress ended last week. Several telecom industry stakeholders made the case for digital application providers or over-the-top (OTT) services to pay them a “fair share" of the cost of internet infrastructure.
In India, telcos largely build and operate this infrastructure, and are seeking an additional network usage fee from application providers to sustain their capital expenditure.
These demands are not new. A white paper by the Cellular Operators Association of India (COAI), ‘Addressing Rising Data Traffic and Associated Infrastructure Costs in Indian Telecom,’ had earlier foreshadowed some of the arguments made at the conference. Telcos want large traffic generators (LTGs) such as video streaming apps to also bear some of the infrastructure costs.
However, international experience suggests India shouldn’t pursue this course. South Korea, the only Asian country to experiment with such ‘fair sharing,’ has seen consumers left worse off. LTGs are increasingly partnering directly with internet providers to get around the policy or offer limited content in the country.
Also read: Indian telecom firms too want fair share of revenues from internet companies
These detours have reduced traffic efficiency and distorted South Korea’s market. As a result, the average time for a data packet to travel from one point to another is the highest among developed countries. This is quite a change in fortunes for a country that boasted of internet infrastructure among the best globally.
The tussle between OTTs and TSPs in South Korea also ignited a debate over ‘net neutrality,’ which states that internet infrastructure providers like telcos should not discriminate between similar packets of data flowing through them.
Everyone already pays for network access. Asymmetric payments by a few users will change this paradigm and incentivize internet providers to play favourites with data packets, violating the principle of net neutrality.
Even the EU has approached the ‘fair share’ demand cautiously, despite its penchant for state intervention in well-functioning digital markets. It has managed to distort all digital interactions already with its trigger-happy data protection, e-commerce and competition-related rule-making.
Surprisingly, better sense still prevails on the question of ‘fair share.’ EU members such as Austria, Denmark, Germany, Italy and the Netherlands don’t support it, and neither do prominent institutions like the European Telecommunications Agency BEREC, Internet Society and RIPE Network Coordination Centre.
The US is similarly unconvinced, despite legislative proposals on variants of the fair-share idea. The Lowering Broadband Costs for Consumers Bill floated by some senators hasn’t progressed. The Joe Biden Administration seems reluctant to repeat South Korea’s missteps. Why then should India?
Also read: Mint Explainer: Why telcos seek fair share on top of bundled OTT plans
Telcos already benefit significantly from application providers, particularly those generating heavy traffic, like video apps. Would you pay as much as you do for the internet if your favourite apps were not available?
Scholars at IIT Delhi and the University of Oslo don’t think so. They suggest that there would be no need for high-quality internet infrastructure without such LTGs.
Scholars Brian Viard and Nicholas Economides go so far as to show that online content consumption, also driven by our favourite apps, has twice as big a role in driving internet adoption than per capita income.
The absence of empirical research in support of a fair-share argument is also telling. Attempts to compensate with false contentions are prone to basic errors. For instance, the COAI white paper contends that growth in data usage is outpacing growth in data carriage, directly correlating the two.
However, data carriage capacity and data usage are two fundamentally distinct concepts—the former is the amount of data that can be transmitted within a given timeframe, whereas the latter represents the actual utilization of this capacity.
Consider this: a single 4G telecom base station delivers over 100 terabytes of mobile data per month. Given that there are more than 2.4 million stations, a back-of-the-envelope calculation suggests that average data consumption per base station is around 11 terabytes per month. Needless to say, the advent of 5G expands data-delivery capacity manifold.
Finally, internet bandwidth represents only one facet of the telecom-applications continuum. Other components include content creation in local languages, cybersecurity vigilance and service quality improvements.
Most popular apps make large investments in these areas and spent more than $1 trillion globally on content delivery networks, public clouds, submarine cables, data centres and data cache servers over the last decade. These help bring content closer to consumers and thus reduce the network load.
The demand for OTTs to pay a ‘fair share’ is misguided. They already do. Exceptional policies can lead to higher consumer costs and market inefficiencies.
Also read: Scindia meets with telecom sector bosses, upholds consumer interests in sectoral growth
The argument of telcos overlooks the vital role of apps in driving internet adoption and ignores the realities of modern network capacity. It is time to lay this matter to rest and focus instead on fostering network innovation and improving people’s access to apps. That will help increase internet connectivity.