Daybreak - The battle between telcos and content companies over 'fair share'

Episode Date: February 27, 2023

Years ago, a tug of war began between tech companies including OTT platforms and telecom companies.Telecom and internet service providers believe that content and tech companies should pay them for disproportionate traffic. But tech and content companies argue that this would violate the principles of net neutrality.The debate has now reached India and telecom regulator TRAI is expected releasing a consultation paper on the matter soon.Will content companies like Google, Netflix have to compensate telcos in India?Tune in.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too? It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

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How do you think OTT platforms rate the success of a show or a movie? By the number of views, right? But have you ever imagined a situation where this very metric could turn against these platforms? Well, that is exactly what happened to Netflix after the release of its ultra-violent survival drama show called Squid Game. The show pulled in a staggering 1.65 billion hours of viewing within a month of its release in September 2021.

A month later, a South Korean internet service provider called SK Broadband sued Netflix. Why? It wanted Netflix to pay for the cost that it had to bear from the increased Netflix. network traffic and maintenance work because of the surge in viewers. SK Broadband reportedly had to spend $40 million just to maintain and stabilize its network. First, the case went to a local court. The local court ruled in favor of SK broadband. And then Netflix challenged the order in the country's highest court.

The case is still ongoing. It all boils down to this tug of war that started years ago between tech companies including OTT platforms and telecom companies. And the question is this. Should content and tech companies pay telecom and internet service providers for disproportionate traffic? But why am I telling you about this today? Because the long-standing issue has finally reached India. Last week, the Internet and Mobile Association of India, which is a non-profit industry body,

said that the Cellular Operator Association of India's demand for revenue sharing is a death knell for net neutrality in India. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Das Sharma, and I don't chase the new cycle. Instead, twice a week on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time. Today is Monday, the 27th of February. Before we dive in, let me tell you a little bit about the idea of net neutrality, because

that is essentially what this entire debate is about. The basic principle of net neutrality is that internet service providers should treat all the information on data that is flowing through their cables as equal, which means that there should be no discrimination against content in terms of speed. Like a particular website should not be faster compared to the other. Advocates of net neutrality believe that the internet should be a level playing field for everyone. otherwise it will end up stifling innovation. For example, if internet service providers had restricted video streaming because of its high data usage, we would never have YouTube in the form that it exists in now, or for that matter, any OTT platform.

In India, the debate on net neutrality picked up back in 2015 when India's telecom regulator, the try, received more than 800,000 emails from Indians within a span of a week. week demanding for a free and fair internet. The emails were in response to more than 100 pages long paper which was published by Try titled Consultation Paper on Regulatory Framework for Over the Top or OTT services that suggested licensing OTT apps. It was around the time when Facebook 2 was pushing for internet.org. It was a service that wanted to extend internet service to the developing world by offering some apps and websites for free, including Facebook, of course.

Telecom firms were supposed to absorb the data costs associated with handling internet.org traffic. But the massive public backlash, because it violated the principles of free and fair internet, forced many big companies to withdraw from the service. And then three years later, in 2018, the Indian government adopted what many called the strongest net neutrality norms in the world. The recommendations explicitly forbade operators from throttling data speeds for any online service and mandated that all content be treated the same. And now fast forward to what is happening at present vis-a-vis net neutrality in the country. The Ken reporter Pratap Vikram Singh wrote about it in a recent edition of our

newsletter, Tech and Policy. About a week ago, the Financial Express had reported. reported that India's telecom regulator, Try, is going to come out with another consultation paper on this issue. The issue we are talking about is telecom operators and internet service providers demanding a payment from tech and content companies for more than usual traffic. Try says that it has already spoken to both sides multiple times on the matter. The report also mentioned that tech and content companies may actually have to pay a carriage fee to internet and telecom providers. Now, this is not a sudden development. TRI officials have had multiple deliberations on this issue over the last year or so. When the Netflix case reached Korea's high court a couple of years ago,

a senior trial official had told Pratap that they had closely been watching the developments and at some point, they too would come up with a consultation paper. Pratap's sources also told him that TRI's leadership believed there is merit in the telecom operators argument. And that it is leaning towards coming up with a system to ensure fair contribution from tech and content giants in the maintenance of telecom networks. Content and tech companies obviously disagree. And they have some valid arguments too. Stay tuned to find out. The first reason that content and tech companies have been giving is this. Companies like Meta and Alphabet, which is Google's parent company, invest billions of dollars in laying

sub-sea optical fiber cables across continents. They invest in hardware at multiple locations across cities to cache videos and content locally so as to avoid network congestion. Second, it is their apps and their content which drives network usage and helps telcos monetize their infrastructure. Streaming and video communications are used by billions of subscribers and drive 4G network usage globally. So why should content and tech companies pay more for telcos or internet service providers? And the third argument is that the content companies believe paying telcos a carriage

fee will violate net neutrality principles. The viewpoints of both parties have been heavily lobbied for around the world. Google, for example, has been quietly funding non-profits to speak about the impacts on net neutrality. Rosalyn Leighton, a tech policy expert, told the Forbes, and I'm quoting, Google's lobbying practices came under question in one hearing which revealed that South Korea's leading internet advocacy non-profit called OpenNet, which was founded with Google as the sole sponsor, received some $10 million to espouse favorable policy. Lawmakers questioned the relationship for what appeared to be lobbying efforts out there

side the organization's remit and an official financial disclosure from the organization that noted a far lower figure than the actual gift from Google. End quote. Some analysts that Pratab spoke to also believe that asking tech companies for network investments is a poor and lazy way for telcos to hide their lack of efficiency and innovation. Telcos, on the other hand, do not believe in what content and tech companies are saying. The world's tech giants have been offering communication services like WhatsApp and

other video communications that have eaten into Telko's revenues and profits, which is a fact. And while voice services have become virtually free in India, Telco still feel that they have the revenue that they used to get from international calling. So what is going on in the Department of Telecommunications regarding this matter? Stay tuned to find out. In India, the Telco lobby has been in talks with the Department of Telecommunications or DOT and the regulator for legislation in their favor. Sometime last year, sources had told Pratab that the DOT had mooted charging tech and content companies a fee similar to a universal service obligation fund. This would essentially mean that if tech companies are charged, the money will go to the

exchequer and not directly to the telcos. According to Pratap, the telcoes, the telcoes, the have been on the backfoot ever since. It is also possible that they are directly in talks with tech and content companies to find an intermediate solution. So the release of Tri's consultation paper on the matter is clearly just the beginning of this battle that may be long-stretched. Daybreak is produced from the Newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings.

A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps, and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host, and today's episode was edited by my colleague Rajiv Sien.