Competition in Telecoms
The Competition Commission of India has argued that since privacy is a non-price factor of competition, the competition regulator can regulate it. Privacy is a specialised area that should not be entrusted to a regulator that brings a purely economic lens its regulation.
This article was first published in The Mint. You can read the original at this link.
Last month, the Competition Commission of India (CCI) released a market study on the telecom sector. While I concur with most of the findings in the report, there are various aspects of the Study that I just can’t wrap my head around. For the most part, it is not entirely clear where the Commission is planning to go with this.
OTT and TSPs
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 all forms of messaging compete with SMS services.
But after setting out evidence of this long history of discord, the study points out that over time TSPs came to realise that the rise of the OTT industry has actually been good for them — and in particular for their data revenues. As a result, a once fractious relationship has now transformed into one of symbiotic co-dependence and, more recently, has moved beyond contractual agreements into full-fledged strategic alliances.
This is an accurate reflection of the current state of affairs. However, I am not sure that a symbiosis of this nature will lead to the pro-competitive environment that the study seems to suggest.
I believe the advanced state of our communications technology owes more to innovation by OTT players than it does to TSP investments in infrastructure. While it is true that none of the communication we take for granted today would have been possible had it not been for the infrastructure rolled out by the telcos, it is thanks to the manner in which OTT players constantly pushed the bar of what is possible that the many improvements in our quality of communication that we rely on have seen the light of day. You need think no further than the manner in which our interactions have been enriched by our ability to send rich text, images, GIFs and video clips, to see what I mean. OTT players are also the reason for growth in allied services such as online payments, e-commerce, digital entertainment and a whole host of other on-demand services.
That said, with TSPs and OTT players symbiotically joined at the hip, as they currently are, it’s anyone’s guess whether the innovation we are used to will continue to evolve at its current furious pace.
Vertical Integration
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, I would have though that developments like this would have set off alarm bells. The study, however, suggests that all the stakeholders who were surveyed remain sanguine, believing that any such integration could only result in a win-win situation. By integrating themselves with innovators at the edge, they point out that TSPs will stop being “dumb pipes", responsible for little more 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 that a cessation in hostilities will retard the market’s pace of innovation.
The study discusses various other relevant issues such as whether vertical integration could exacerbate the risk that walled gardens will be created, resulting in contained environments that users will have no desire to escape from since all the services they could conceivably desire will be available to them within that vertically integrated environment. 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.
Solutions?
The study raised all these questions and more but, to my surprise, it provided little by way of answers. For instance, beyond pointing out that vertical integration could result in the creation of walled gardens, it doesn’t really suggest what might be an appropriate strategy 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 is a wasted exercise. Rather than focusing on finding new justifications for punishment, we should be doing whatever we can to appropriately extract value out of these digital systems without causing inordinate harm.
One possible solution to the problem of walled gardens could be to mandate portability and interoperability. If data is the source of anti-competitive behaviour should our response not be to find means by which data can be appropriately liberated? 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 just focusing on developing better justifications for punishing them.
Privacy
But there is a part of the study that I strongly disagree with — one that if acted upon will, I believe, set an unhealthy regulatory precedent we can ill-afford at this juncture.
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 this analysis. If consumers are denied the opportunity to freely provide consent as to what should or should not be done with their data, it will affect their welfare. That being the case there is no doubt that something needs to be done about it.
That said, privacy is a complex subject. It has nuances and subtleties too complex to be effectively addressed by a non-specialist regulator trying to find a remedy for one manifestation of harm. As regular readers of this column are aware, I believe that consent itself is not a complete solution to all the challenges that are posed by modern technology to personal privacy in a digital age.
These are not the sorts of nuances that the competition regulator will get — nor should be expected to appreciate. They simply do not have the necessary frame of reference that it takes to appreciate these sorts of nuances or the full range of experience that is needed to find holistic solutions.
India is on the verge of getting itself a privacy regulator. It has taken us an age to get here — but we are nearly there.
This is not the time for other regulators to try their hand at regulating it.
