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Home >Opinion >The Competition Commission’s puzzling telecom study

Last month, the Competition Commission of India (CCI) released a market study on the telecom sector. While I concur with many of the findings in the report, I can’t wrap my head around where the Commission is planning to go with this.

Take, for instance the discussion around over-the-top (OTT) players and the historical tensions between them and telecom service providers (TSPs). The study notes that TSPs have always been justifiably wary of OTT business models, given that more often than not, they compete directly with many of their core offerings. Voice over internet protocol services, which allow users to make voice calls using data, directly compete with the mobile telephony services that TSPs offer, just as the entire messaging industry competes with SMS services.

But after acknowledging this long history of discord, the study goes on to point out that TSPs have come to appreciate the impact that the rise of the OTT industry has had on data revenues. This has transformed a once fractious relationship into symbiotic co-dependence that has more recently moved beyond contractual agreements into full-fledged strategic alliances. While this is an accurate reflection of the current state of affairs, I am not sure that a symbiosis of this nature will lead to the pro-competitive environment that the study suggests.

In my view, the current state of communication technology owes more to OTT innovation than it does to TSP investments in infrastructure. Had it not been for OTT pushing the bar, many improvements in our quality of communication would not have seen the light of day—think no further than the extent to which messaging has been enriched by our ability to send rich text, images, GIFs and video clips, to see what I mean. OTT popularity is also a reason for growth in allied services such as online payments, e-commerce, digital entertainment and a whole host of other on-demand services. Now that TSPs and OTT players are symbiotically joined at the hip, as it were, it’s anyone’s guess whether the innovation we have gotten used to will continue at its current furious pace.

We are already seeing the next stage in the symbiotic evolution of this relationship as OTT players have begun to vertically integrate themselves with TSPs. Ordinarily, developments like should have set off alarm bells, but, according to the study, the stakeholders who were surveyed remain sanguine, believing that any such integration could only be a win-win situation. By integrating themselves with innovators at the edge, TSPs will stop being “dumb pipes", responsible for little other than shunting data from one node to the next. OTT players, on the other hand, will benefit from being able to build products that are more tightly integrated with core infrastructure. As much as all this will likely result in improvements in overall efficiency, I can’t help but worry about the extent to which a cessation in hostilities will retard the market’s pace of innovation.

There are other relevant discussions around whether vertical integration could exacerbate the risk of walled gardens emerging that users will have no desire to escape from, given that the OTT players integrated within them provide all the services one would conceivably need. Or whether the high switching costs associated with efforts at walling off subscribers will deter new entrants to the space—which would further chill innovation.

While the CCI study raised all these questions and more, it provided little by way of answers, unfortunately. For instance, beyond pointing out that vertical integration could result in the creation of walled gardens, it doesn’t really offer strategies for mitigation. If its sole purpose was to provide the CCI with fodder for investigation and prosecution, I can’t help but think that this was a wasted exercise. Rather than focusing on punishment, we should be doing all it takes to extract value out of these digital systems.

One possible solution to the problem of walled gardens could be to mandate portability and interoperability. India has already put in place the infrastructure and regulatory framework required to enable this in the financial and healthcare sectors. By requiring OTT players to commit themselves to making their data portable and systems interoperable, we can incentivise better behaviour on their part, instead of focusing on justifications for punishment.

That said, there is a part of the study that I strongly disagree with, one that if acted upon will set an unhealthy regulatory precedent. The study suggests that privacy has a non-price impact on competition and that any behaviour on the part of dominant players that has the effect of impairing the ability of consumers to freely offer their consent should be treated as an abuse of dominance.

To be clear, I have no disagreement with that analysis. The absence of free consent does affect consumer welfare and something needs to be done about it. However, privacy needs a regulator of its own. It has nuances too complex to be addressed part-time by a non-specialist regulator. Even though consent freely given is pro-privacy, it is not nearly enough in itself. These are the sort of nuances I expect a Data Protection Authority to get. The competition regulator simply does not have the frame of reference needed to appreciate it. India is finally on the verge of getting itself a privacy regulator. This is not the time for other regulators to try their hand at regulating it.

Rahul Matthan is a partner at Trilegal and also has a podcast by the name Ex Machina. His Twitter handle is @matthan

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