Public Knowledge & IDEC:
Over the past years, several national telecommunications regulators and international telecommunications bodies such as the International Telecommunication Union (ITU) and the Inter-American Telecommunications Commission (CITEL), have been discussing new ways to (re)regulate Internet services and applications, sometimes called “Over-The-Top” (OTT) applications. The results of these discussions will have serious consequences for consumers and Internet users worldwide, since OTTs are for the vast majority of consumers and users the identifiable layer of the Internet –having become in practical terms “the” Internet for the average user. The governance of OTTs is a very close proxy to the governance of the Internet.
In OTT governance debates, there are three questions that dominate conversations: The “level playing field” question, the “free rider” question, and the “same service same rules” question. The first, whether there is a “level playing field” between OTTs and the legacy voice, SMS, and video services provided by network operators and broadcasters is the most often asked in the OTT governance debates. We believe that is a fundamentally misguided question: there cannot be, and there should not be, a “level playing field” between OTTs and network operators simply because OTTs and network operators are in two fundamentally separate markets that ought to be regulated in very different ways. The truism that like services should be regulated in like ways does not mean that all services are, in fact, alike. On the one hand, network operators are often a monopoly (natural or not) that owns the network, or are granted exclusive control of a scarce public resource (through spectrum licensing, access to public rights-of-way, and so on). Regulation should guarantee those network operators are not allowed to unfairly abuse their privileged position, for example, by restricting the ability of consumers to use the OTTs of their choice. On the other hand, OTTs operate in what can be a more competitive environment, and rely on the network access to expand the opportunities and offers for consumers. Consumers freely access their choice of OTTs through the access they purchase from network operators. Here is the "level playing field" fallacy: the legacy services that network operators provide have the advantage of policies and economic conditions that produce monopolies and promote monopoly dominance over all services that are accessed through their network – OTTs are successful not because of existing market conditions but despite them, thanks to the innovation allowed by the end-to-end principle that governs the Internet. OTT markets can become concentrated and may pose regulatory and competition challenges of their own, but these challenges cannot be answered through facile comparisons to last-mile network operators.
The second question, the “free rider” question, refers to the idea that edge providers –the OTTs- should be contributing to sustaining the infrastructure of the network –in essence, allowing network operators to charge OTTs to reach consumers, establishing a paid prioritization of internet traffic. This is also a misguided question. First, it omits the role of users, who pay network operators specifically to access OTT applications. It likewise ignores the positive externalities created by open networks--the “virtuous cycle” created by “new uses of the network—including new content, applications, services, and devices—lead to increased end-user demand for broadband, which drives network improvements, which in turn lead to further innovative network uses.” This cycle depends on edge providers being able to easily enter the market, driving end-user demand and increasing innovation. Absent a ban on paid prioritization and other harmful behaviors from network operators, edge providers will not be able to freely enter the market in the same way - instead, they will have to use their scarce resources simply to have access to the “fast lanes” to remain competitive against incumbent businesses. The best way to guarantee that all stakeholders prosper and thrive is to dismiss the “free-riding” fallacy, ban paid-prioritization, and encourage an environment in which consumer choice and innovation drive up the demand for Internet services. In addition, as explained in the following pages, OTT providers such as Amazon, Microsoft, or Google among others are contributing to the physical internet infrastructure by financing the layout of submarine internet cables, inter alia. In matters of infrastructure investment, the last mile is important but not the only aspect of internet infrastructure.
Regarding the “same service same rules” proposition, we warn against false equivalences. Most OTTs remain complementary rather than substitutes of legacy services. For example, the most successful VoD OTT do not offer linear programming –and therefore should not subject to the same identical rules than cable or air TV channels. (In the US, the relationship legacy pay-TV services and broadcasters is highly regulated; bringing OTT video providers under the “same rules” would require, among other things, granting them compulsory video copyright licenses.) In addition, OTTs do not benefit from the structural advantages of vertical integration that the services provided by network operators enjoy. Take for example the Public Switched Telephone Network (PTSN). Right now, PSTN service is part of the mobile phone plan that most subscribers purchase, which is itself a distinct advantage. PSTN traffic, too, is treated differently than data traffic on mobile carriers’ networks. But even if one day the PTSN might transform into an application that runs over the Internet, that does not mean it would become “just another” application like Viber, FaceTime, or Skype. The PSTN has its own numbering system, phone numbers, that requires international cooperation between governments and many private entities. Emergency calling depends on the PSTN. Business can give out phone numbers without worrying whether their customers have some special app or particular level of expertise. The PSTN is useful, and it is useful because it is a decentralized, international, nonproprietary, universal means to establish voice calls between any two places on Earth. So, while instant messaging, email, video streaming, non-PSTN voice communication, and so on are all important applications, none of them are as clearly “affected with the public interest” as the PSTN, and this is true whether or not the PSTN corresponds to a separate physical network. Network operators have the structural advantage of offering services that users can usually not choose to have in the telecommunications packages they use. These services, in addition, are offered in a vertically integrated fashion. In contrast, OTTs are simply not universal, are not automatically integrated into the network, are not by default available in the devices that connect to the network, and are not encouraged, supported, and mandated by public policies and regulations. And some network operators are offering their own OTT services: in Mexico, Televisa lunched its new over-the-top service Blim, focusing on streaming of original and archival video content to Mexico and the rest of Spanish-speaking Latin America. Claro (America Movil) provides both music streaming and video through Claro Música and Claro Video. Hence, there is no need to try to impose a false equivalence among services that are not equivalent.
The discussion over the regulation of OTTs is, therefore, fundamentally a discussion of how to regulate the Internet, with direct implications for Net Neutrality, freedom of expression, consumer rights and innovators. Furthermore, we believe that there are public interest reasons to consider obligations on OTT providers: for example, accessibility, help assure free expression, and help services to be more affordable to all. But we don’t think that OTTs should be regulated as network operators, as they are different actors in very different market. We support the Open Internet values that have allowed OTTs to thrive and consumer choice to be multiplied. We believe that policy makers should seek to guarantee an enabling framework that perpetuates that the Internet remains as an open-space for innovation and entrepreneurship, for which advancing the values of net-neutrality and permissionless innovation is fundamental.
The following pages explain why the current state of affairs and the dominance of OTTs is not an accident but an intended and foreseeable consequence of the development of the Internet. The Internet as we know it is and has been purposely designed as a decentralized system where Internet subscribers can use their service to send and receive their choice of “[e]very single form of content ever conveyed over any electronic communications system--voice (telephony), audio (radio), video (television), documents (faxes), and so forth.” OTTs are a clear intended consequence of the Internet architecture.
The paper structure follows the questions presented by CWG in the consultation: “1. What are the opportunities and implications associated with OTT?”; “2. What are the policy and regulatory matters associated with OTT?”; “3. How do the OTT players and other stakeholders offering app services contribute in aspects related to security, safety and privacy of the consumer?”; “4. What approaches might be considered regarding OTT to help the creation of environment in which all stakeholders are able to prosper and thrive?”; “5. How can OTT players and operators best cooperate at local and international level? Are there model partnership agreements that could be developed?"