Coming Soon: A Telcos Vs OTTs Battle!

Even as the battle in India's streaming market is entering a decisive phase, the Cellular Operators Association of India (COAI), which plays an advisory and advocacy role in the sector, now wants these streaming giants, which have been referred to as large traffic generating (LTG) platforms and application, to share the burden of rising infrastructure costs.

In a white paper, the industry body has called for a fair share of contribution from LTGs to sustain network infrastructure and efficiently manage increasing data traffic. As per the study, pre-2014, which has been classified as pre-OTT era, capex requirements were declining due to steady network capacity requirements. Over 2015-2018, following the introduction of 4G and OTT applications saw a significant rise in capex as investments increased to manage higher data traffic. Post-pandemic, from 2019 to 2023, the capex has been rising, in part owing to spectrum acquisition costs. For instance, in March 2014 (pre-OTT era), the capex of ₹26,341 crore, kept increasing significantly in the following years, with a peak in FY23, where the capex hit around ₹73,922 crore. As per analyst reports, the combined investment of Reliance Jio and Bharti Airtel to strengthen their networks is likely to touch ₹75,000 crore in the current financial year.

As per the COAI paper, these LTGs, by consuming significant internet bandwidth, increase network costs without directly contributing to infrastructure expenses, impacting operators' ability to invest in network upgrades, such as 5G. As per TRAI data, volume of total wireless data usage increased from 41,790 petabyte (PB) during the quarter ended March 23 to 44,967 PB for the June 2023 quarter, quarterly rate of growth of 7.60%. Of the total data wireless usage, 2G data usage was 46 PB, 3G data usage was 353 PB, 4G data usage was 42,505 PB and 5G data usage was 2,063 PB. One PB equals 1,024 terabytes (TB) or one million gigabytes (GB).

The paper, after analysing several models to address infrastructure cost requirements, has advocated a model that measures the difference between baseline telecom service provider traffic and LTG traffic from a certain point — suggested as 2019 — and arrive at contributions based on this differential. The approach accommodates smaller players such as startups and MSMEs, targeting only the major LTGs responsible for the increased traffic. According to the paper, this model aims to balance net neutrality concerns, avoid double-dipping, and ensure an equitable share of infrastructure costs among stakeholders. This method aims to ensure that major LTGs benefitting significantly from the telecom infrastructure should contribute a fair share to the maintenance and upgrade of the network, thereby easing the financial load on telecom operators. The paper claims such an approach will balance the interests of telecom service providers, LTGs, and consumers, thus supporting the sustainable growth of the telecom sector as well.

However, since the COAI plays an advisory and advocacy role, implementing such a model would require endorsement or regulation by the regulator, the Telecom Regulatory Authority of India. Whether LTG platforms will agree to the proposed model of sharing infrastructure costs is uncertain and would depend on various factors including regulatory decisions, industry negotiations, and market dynamics.

What's ironic is that while OTT viewers are having a feast day, the market dynamics for OTT is far from lucrative given the competitive intensity in the sector. As per the Ormax OTT Audience Report, India's OTT audience hit a new high of 481.1 million (48.11 crore) in 2023, a 13.5% YoY growth over 2022 but lower than the 20% seen in 2022. As per the report, despite the double-digit growth, only 1 in 3 Indians, that is approximately 31.8% (153.1 million), is paying for streaming content.

An intense streaming war is being played out between Amazon Prime, Disney-Hotstar, JioCinema and Netflix for some time now with 2023 seeing the launch of 107 Hindi fiction shows and 41 direct-to-OTT Hindi films. While Amazon-Prime, Disney-Hotstar are betting big on regional contents, Netflix is driving subscriptions primarily through its global content library. JioCinema, on the other hand, offers free local content but charges for international content from HBO and Warner Brothers.

Though with a penetration level of 34%, India's digital content consumption is far from reaching saturation, the Ormax report suggests the sector may be entering a more mature phase. This is where the COAI suggestion can put a spanner in the works.

Even as Netflix, Disney-Hotstar, Amazon Prime Video, JioCinema and others are experimenting with different pricing strategies to capture the market, getting the pure streaming platforms, barring JioCinema, to share infra costs would mean further pressure on pricing. According to a recent report by AllianceBernstein, Disney+Hotstar dominates the Indian market with over 40 million subscribers, Prime Video has 20 million and Netflix has about 6.5 million subscribers. Amazon Prime has pricing tiers between ₹299 a month to ₹1499 annually, Dinsey+Hotstar has a ₹299/monthly plan and ₹899-Rs 1,499 annual plan, while Netflix's monthly plans range from Rs 149 (mobile only) to Rs 649. Even as they are splurging on content, the streaming market is still far from profitable. Against such a backdrop, it's clear that both the telecom service providers and LTGs are very much in the same boat.

Of the monthly average revenue per user of ₹145.64, telcos' average revenue from data usage is ₹130.16, whereas the rest is minuscule — rental revenue is ₹0.82, revenue from calls is ₹15.44, VAS is ₹1.37, and other revenue fetches ₹3.43. India is now among the handful of nations to have the lowest internet data cost of ₹14 (about $0.17) per GB, and clearly shows why telecom operators are crying foul over streamers making the most of the data boom.

While telecom players could throttle traffic to degrade user experience of LTG platforms, it will be a highly controversial approach and can lead to significant regulatory and legal issues. Besides, it will be seen as a violation of the principles of net neutrality that mandates all internet traffic should be treated equally without discrimination. A more effective way for the operators would be to engage with LTGs and seek regulatory support to arrive at a mutually agreeable solution. Now, that's easier said than done!