Discussions
Over-The-Top (OTT) Services and regulation
JB Cronjé, tralac Researcher, discusses technology convergence and the regulation of trade in services
The evolution of increasingly sophisticated technology convergence has had a disruptive effect on all industries. Some of the most innovative companies in their industries, like Blackberry and Kodak, have amongst other reasons, floundered, shrunk or even grown obsolete due to their inability to keep pace with technological changes. Their demise also relate to a lack of response to consumer demand and expectations, which influenced the particular business models adopted. Electronic mail is an early example of the disruptive effect of technological changes in the way people communicate. It has had a devastating impact on the revenues of post offices. ‘Over-The-Top’ (OTT) services are more recent examples of such disruption. Change has become constant.
OTT services take advantage of converged broadband internet networks, that handle multiple types of traffic such as voice, data and multimedia, where they exist to provide services ‘over the top’ of these networks. In other words, OTT refers to content delivery (such as video, audio and other media content) through the internet and are provided without the direct involvement of the internet network service providers; which in most cases are telecom or cable system operators. Examples of OTT services include Voice over Internet Protocol (VoIP) services (e.g. Skype, WhatsApp, Viber, FaceTime, etc.), IP messaging services (e.g. WhatsApp, Line, WeChat), audio-visual content (e.g. Netflix, Apple TV, ShowMax, YouTube, Hulu, iTunes), e-commerce (e.g. Amazon, internet banking, cloud services), and social services (e.g. Facebook, twitter, Pinterest, LinkedIn, Instagram). The emergence and growth of OTT services are direct consequences of the convergence of the ICT ecosystem. As broadband networks expand in both coverage and quality so too will the business opportunities presented by these networks and the choices of OTT services offered to consumers.
OTT VoIP and IP messaging services can be considered competitors to the voice and messaging (SMS) services provided by traditional fixed and mobile telephone operators. In fact, with the possibility of zero charges when messaging people in other countries; the ability to create groups; and sending unlimited images, video and audio messages, OTT services are more and more viewed as viable substitutes. In many countries, OTT services have had a disruptive effect on the SMS and voice revenues of mobile telephone operators. Even though OTT services are providing a growing source of data revenues to network operators, OTT voice and messaging services are less bandwidth intensive.
At the same time, OTT bandwidth intensive services, such as Netflix and Apple TV, for streaming online content, are changing the television industry because they are increasingly considered ready substitutes for traditional pay-tv providers. OTT TV services are directly delivered to the consumer over an open internet connection independently of a consumer’s internet service provider and the networks of pay-tv providers. Television has traditionally played an important role in forming public opinion, promoting linguistic and cultural diversity, and contributing to social cohesion. As a result, the broadcasting sector has always been heavily regulated to protect minors, impose local content obligations, advertising restrictions or production subsidisation rules. These regulations impede local broadcasters’ ability to compete with foreign OTT TV service providers which are virtually out of regulatory reach.
OTT service providers often offer free content to consumers or charge a nominal fee whilst they “piggyback” on the infrastructure of network competitors and generate advertising revenue for themselves. Foreign OTT services providers do not require licenses to operate and as a result to do not have to comply with domestic regulatory obligations such as interconnection requirements, universal service obligations, local content and empowerment obligations, privacy protection, consumer protection, or national accounting, financial reporting and tax regimes. In addition, they rely on internet networks to offer their products but they do not make a direct contribution towards the cost of providing it. This causes a disconnection between data traffic and data revenues to compensate for infrastructure investments. In many countries, network service providers have responded by starting to manage their networks by blocking certain OTT services generally considered to be in competition with their business; discriminating between OTT services by degrading or slowing down (throttle) traffic inhibiting internet speeds; or, offering ‘paid prioritisation’ services giving preferential treatment to certain traffic over other traffic. This has resulted in some countries considering or adopting ‘network neutrality’ regulation treating all internet traffic equally by prohibiting discrimination, restriction or interference of users independent of sender, receiver, type, content, device, service or application.
A close connection is developing between the rules of international trade on market access, domestic regulation and network neutrality. This is increasingly subject to trade negotiations. However, a comprehensive classification of the different facets of OTT services is yet to be developed. A balance will also need to be struck between content exporting countries pursuing their trade interests in the name of consumer choice and free flow of information (subject to public interest regulation) and the developmental needs of content importing countries because increased internet traffic creates congestion problems and puts pressure on network providers to develop infrastructure. Strict network neutrality rules might therefore not be a viable option in all cases. With respect to the regulation of foreign content, some argue localisation requirements on technologies and data servers in trade agreements restrict cross-border data flows and impede economic activity. As a result, some trade agreements now include provisions that prohibit the introduction of local presence requirements as a pre-condition for the cross-border supply of services in their territories. It is also possible to argue, that without the requirement of local presence of foreign content providers, countries will not be able to effectively apply and implement domestic broadcasting regulations.
Source:
Peng, Shin-yi. “GATS and the Over-the-Top Services: A Legal Outlook”. Journal of World Trade 50, no 1 (2016): 21-46.