December 17, 2024
📰 FEATURE STORY
Should there be a revenue-sharing model between OTTs and telecom companies?
For a long time, telecom service providers (TSPs) and over-the-top (OTT) applications have had a love-hate relationship. Widespread digitisation has resulted in more people having internet connections and using OTT platforms. There’s a lot of money to be made here, and here’s where the issue lies.
The tussle concerns whether OTT platforms should pay TSPs a share of their revenue for the data packets they consume to support services like video calls and streaming video content. So far, OTT platforms have rejected this proposition since it would impact their businesses. Are they right?
Context
The smartphone is at the centre of this tussle. Mobile phones are increasingly becoming the go-to devices for communication and content consumption. To keep customers happy, TSPs strive to provide seamless and high-quality voice, data and multimedia services.
Traditional revenue streams for telecom companies have been voice and messaging (SMS). Data is catching up fast, and the rise of OTT platforms has challenged their revenue streams. These platforms deliver audio, video, and other media over the internet and bypass the traditional operator’s network. They’re lean and nimble, enabled by technological advances like advanced smartphones, fast IP networks, and innovative services.
These OTT platforms can’t operate independently. They need and use the network and infrastructure of TSPs. It means continuous capital investment. However, they don’t directly contribute to telecom companies’ revenue despite data packs necessary for OTT services. From the TSPs’ point of view, there’s a big worry – OTT platforms offer services that are close substitutes for their own offerings.
Since 2015, TSPs in India have argued that OTT platforms like WhatsApp, Telegram, etc, must be regulated. They also want to charge them for riding on their infrastructure.
An important component of the draft 2022 Indian Telecommunications Bill was the inclusion of OTTs in the definition of telecom services. According to the Cellular Operators Association of India (COAI), TSPs only want a light-touch regulatory approach for OTT communication apps. This includes compensation.
The 2023 Telecommunications Act revived the debate between TSPs and OTTs over the interpretation of the telecommunication service under the new legislation. TSPs want OTT services regulated on par with them for a level playing field. That would subject OTTs to similar licensing regimes and taxation.
According to COAI, it’s a simple equation. TSPs create the network and pay for it. Internet service providers buy bandwidth and provide services to customers, who pay for them. OTTs ride on this network for free, provide services to users and profit off the existing infrastructure.
VIEW: Revenue needs to be shared
TSPs spend heavily improving their networks to support higher data capacities and streaming. OTT platforms put a disproportionate amount of data traffic on these networks, enjoy the benefits of the expensive infrastructure that they didn’t spend anything on, and earn profits that aren’t shared. With the advancement of 5G and 6G in the future, TSPs will be spending crores to enhance and maintain their network capabilities.
According to TSPs, managing network congestion and ensuring quality services requires traffic management, which would violate net neutrality. Data consumption due to video streaming platforms strains telecom networks. TSPs have also argued that call drops have been exasperated due to more OTT players. They’ve also said the shift in voice traffic to platforms like WhatsApp has reduced revenues and limited their ability to invest in improvements to address call drops.
According to the COAI white paper, there’s a potential loss of ₹800 crore to the government exchequer without a revenue-sharing model. That will only increase as TSPs spend more to upgrade and build new network infrastructure. The notion that a revenue-sharing model would affect startups and smaller companies is false. The COAI cited the example of an Appstore provider that removed startups and smaller local applications from its online platform due to non-payment of their quoted fees. Indian TSPs have been consistent that MSMEs and startups that generate low traffic won’t be required to pay.
COUNTERVIEW: Revenue sharing is unfair
It’s fair to say that data consumption and traffic have ballooned over the past several years in India and around the world. OTT platforms have had to keep up with the demand. Between 2018 and 2021, OTTs invested $120 billion globally in network infrastructure, including undersea cables and data centres. According to the OTT platforms, customers “cause” the traffic. They’ve nevertheless invested in digital infrastructure and saved TSPs transport costs.
Before large-scale digitisation, TSPs capitalised on Value Added Services (VAS) beyond SMS, voice calls, and data offerings. VAS enabled customers to use their phones to send pictures, listen to music, and play games. Post-digitisation and the advent of OTTs, VAS transformed into bundle tariff plans that include access to OTTs. TSPs earn more revenues through this since customers tend to upgrade to higher plans for more data. Content available on OTT platforms has generated demand for broadband. Bundled packages are convenient for customers since they get one bill for OTT subscriptions, mobile services and internet.
If a revenue-sharing model is adopted, there’s a danger of double-charging customers. WhatsApp is widely used in India because it’s free, and users pay for data packs provided by TSPs. The revenue-sharing debate isn’t unique to India. South Korea implemented a sending-party-network-pays (SPNP) model that applies to some OTTs. Hence, internet-based platforms partnered directly with internet providers, which led to reduced traffic efficiency. Customers are worse off due to high average data packet travel times.
Reference Links:
- Telecom players write to the government again to address revenue sharing model with OTT providers – Business Line
- Revenue sharing mechanism between OTTs and TSPs will violate net neutrality: IAMAI – The Financial Express
- OTT fair-share debate due to insufficient revenue from data consumption: DoT official – The Economic Times
- Revenue share between telcos and OTT players worth exploring: Meta executive – The Economic Times
- Will Battle Between Telcos and OTT Apps Threaten Net Neutrality? – Outlook Business
- Why telcos should refrain from demanding a ‘fair share’ from OTTs – The Indian Express
What is your opinion on this?
(Only subscribers can participate in polls)
a) There should be a revenue-sharing model between OTTs and telecom companies.
b) There shouldn’t be a revenue-sharing model between OTTs and telecom companies.
Previous poll’s results:
- Hyperloops can be a feasible mode of transport in India’s future: 52.9% 🏆
- Hyperloops can’t be a feasible mode of transport in India’s future: 47.1%
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