Vivan Sharan and Mohit Kalawatia Dec 06, 2018 14:56 PM IST
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.