How to fund India’s booming data consumption? Who pays for an ever-expanding network?

By Dr. Jaijit Bhattacharya

This explosive growth in data consumption is both a triumph and a challenge for India’s telecom industry. While consumers rejoice in the digital abundance, Telecom Service Providers (TSPs) are strained under the weight of keeping our online world afloat.

Remember the days of waiting by the landline, hoping the receiver was around? Today, a universe of entertainment, information, and communication fits snugly in the palm of your hand. We stream movies, binge-watch shows, attend work meetings, and connect with loved ones – all on our phones.

This explosive growth in data consumption is both a triumph and a challenge for India’s telecom industry. While consumers rejoice in the digital abundance, Telecom Service Providers (TSPs) are strained under the weight of keeping our online world afloat.

TSP’s in India are strained as they are bearing the entire burden of spectrum fees, and are also responsible for building and maintaining networks. The growth of smartphone usage, and cheaply available internet have been a catalyst for the digital economy in India.

While TSPs in India were sufficiently equipped and averse to financial strain during the steady rise in data usage from 2014-2016, things turned around rapidly in late 2016. India witnessed skyrocketing usage of data with entry of new players, and rise of different streaming services such as NetflixAmazon Prime and YouTube.

The key deliberation here is who pays for the ever-expanding network. TSPs have already been shouldering the entire burden. This is despite streaming and Over-the-top (OTT) platforms being the primary drivers of data consumption.

These platforms have contributed far less than their fair share towards network infrastructure costs, although they have benefitted the most in revenue terms through advertising and user subscriptions. This imbalance of payment has crippled the TSPs in India. While data use has skyrocketed, prices have hardly budged due to fierce competition.

The situation will be dire if this strain isn’t addressed, we could be looking at a network meltdown – slower internet speeds, dropped calls, and a frustrating experience for everyone.

The conundrum now is to find a solution to the financial strain faced byTSPs. There are several potential solutions on the table that can reorient the telecom sector for the better. The key will be to strike a balance between fair compensation for TSPs, and continued affordability for consumers in India.

Model 1: Uniform Price Hike
Raising tariffs for all subscribers might seem like an easy fix, but this approach would simply raise the baseline cost for all subscribers.

While this ensures TSPs recover their infrastructure expenses, it unfairly penalizes those who don’t use data-heavy OTT services. This may be a bane to digital inclusion aspirations for India.

Model 2: Tiered Pricing with Net Neutrality Concerns
This approach proposes charging more for higher data usage, with OTT users paying a premium. While this seems reasonable, it raises concerns about Net Neutrality, the principle of equal access to all internet content.

Imagine dividing the party into sections – one for high spenders and another for budget-conscious guests. This creates an uneven experience, potentially hindering access to valuable online services.

Model 3: Traffic-Based Cost Sharing
This model would be a fairer system for funding network infrastructure. Under traffic-based cost sharing, the additional infrastructure costs caused by the rise of OTT platforms would be shared by the platforms themselves. These costs are directly linked to the amount of data traffic each platform generates.

The more data traffic an OTT platform creates, the greater their contribution towards expanding and maintaining the network. This ensures a more equitable distribution of responsibility, ensuring everyone pays their fair share for the resources they use.

Model 4: Modified Traffic-Based Cost Sharing
This approach takes the sharing concept a step further. OTT platforms contribute based on the additional data traffic they generate beyond a baseline figure. This protects smaller digital platforms that do not have the same data footprint as established platforms.

It also incentivizes efficiency – the more data an OTT platform uses compared to the baseline, the higher their contribution. Additionally, using a clear baseline figure will ensure transparency in calculating the financial contribution.

However, implementing this model brings its own challenges. Accurately measuring data usage by platform, selecting a fair baseline figure, and enforcing financial contribution will require the enactment of enforcement and regulatory entities.

Beyond Traffic: Classifying OTT Services
Not all OTT platforms are created equal. Some, like WhatsApp, directly compete with traditional TSP services like voice calls and messaging. Others, like online shopping apps, offer functionalities beyond just communication, encompassing features like product browsing and online transactions.

A classification system could categorize OTTs based on their main function, providing a springboard for a nuanced discussion about contributions.

This approach avoids a “one-size-fits-all” solution and could lead to targeted regulations that address the specific challenges posed by each category and determine the appropriate level of contribution from OTT platforms towards network infrastructure.

The Government’s Role
While the focus is on TSPs and OTT platforms, the solution to this problem can only be determined by the government and regulatory agencies. Reducing the hefty spectrum fees will provide immediate financial relief for TSPs.

Additionally, funds from the Universal Service Obligation Fund (USOF) could be strategically allocated to bridge the digital divide by supporting infrastructure development in underserved regions of the country.

The Road Ahead: Collaboration is Key
Just as we witnessed in the process of rolling out of Bharat Net III, where the government worked closely with industry in the finalizing of the RFP – collaboration will once again remain key in deciding a way forward.

While the solutions discussed above are not exhaustive, TSP’s, OTT platforms and the government need to work together to design a sustainable financial model for the continued growth of the digital economy. After all, a thriving telecom sector is not just about connecting people; it’s about empowering businesses, fostering innovation, and bridging the digital divide.

The end goal in any case is to make sure everyone has a seat on the data train, so they may have equal opportunities and aspirations.

This article first appeared in ET Government,