In the wake of Indian regulators’ calls to ‘exchange views on Over the Top services’, Ravi Rajagopalan, CEO of MEF Member Empays Payment Systems and MEF Asia Board Director, here argues that discussion must not lead to market intervention.
In the early days of the mobile internet the telecom operator was king. As well as controlling voice and text communications, they decided what content their customer had access to and how much it would cost.
Unfortunately, this ‘walled garden’ approach didn’t tally with consumers’ experience of fixed internet services. People liked the fact a web browser would take them to an open world where thousands of merchants competed for their attention. The result was better value, an enhanced customer experience and constant innovation.
While operators grappled with this challenge Apple launched the iPhone and kick started the apps revolution. The more resourceful operators quickly realized they couldn’t fight the tide. Instead of standing in the way of progress they concentrated on feeding the insatiable appetite for mobile data.
Now telecoms operators face a new challenge. OTT companies are riding the data network to cannibalise carriers’ bread-and-butter businesses of voice and SMS traffic. Operators in the mature markets of the West are suffering losses but have managed to offset them, at least in part, through an upsurge in data revenues.
The Rs 50,000 crore question here in India at the moment is how will OTT affect our carriers: will they sink or swim? Worryingly, the market-shaping regulators at TRAI, the Telecom Regulatory Authority of India, seem to be betting on the latter.
“Experience outside India suggests that operators can insulate themselves from the effects of OTT by turning a profit from network and connectivity services… However, this only comes about when a business has around 20% market share. This points to the need for significant consolidation in the Indian mobile market.”
On August 5 they invited industry representatives to a seminar to “…exchange views on key issues related to OTT such as (the) impact of OTT on TSPs and their counter measures and (a) legal and regulatory framework for OTT.”
Behind the scenes, telecom operators in India are trying to persuade TRAI that OTT apps companies should pay them a connectivity charge. They argue increased data revenues alone won’t save them because Indian consumers enjoy some of the lowest tariffs in the world.
But before the government and its regulator leap to their defence, let’s first be clear on why tariffs are so low and why there is so much competitive pressure.
First, our operators are burdened by debt. This is neither OTT companies’ nor consumers’ fault.
Second, there are simply too many of them. Of the fourteen Indian mobile operators most are struggling for any kind of real market impact. Consumed with day-to-day survival, they have little incentive to think of long term profitability. Experience outside India suggests that operators can insulate themselves from the effects of OTT by turning a profit from network and connectivity services. However, this only comes about when a business has around 20% market share. This points to the need for significant consolidation in the Indian mobile market.
I’m not denying there’s a difficult choice for the brain-trust at TRAI. On the one hand, fewer operators means fewer choice and perhaps higher prices for consumers. On the other hand, a smaller market means more long term stability. The alternative – to protect all operators, regardless of how small their business – means more government intervention and market-making. History teaches us that this leads to less innovation, less choice and higher prices in the long run.
Perhaps the most important reason not to hold back the OTT market is that it won’t actually help mobile operators. The moment an app has to increase its charges (because of regulation), usage will fall which will hit data revenues.
Ravi Rajagopalan is CEO of Empays Payment Systems and member of the MEF Asia Board.