5 Reasons Why The Network Fee Debate Is Giving Indian Founders Sleepless Nights

Indian startups are up in arms against telecom operators for allegedly trying to violate the basic principles of net neutrality by trying to bring over-the-top (OTT) platforms under the regulatory ambit. 

Ever since the Telecom Regulatory Authority of India (TRAI) floated the consultation paper on regulating OTT communication apps back in July this year, a full-blown public fracas has erupted between the telecom operators and Indian startups. 

The Indian telecom providers are aggressively batting for an overarching regulatory framework, mandating OTT platforms to foot network costs based on bandwidth usage. All major private players, be it Reliance Jio, Airtel or Vodafone Idea (Vi), have proposed a revenue-sharing agreement between operators and big tech companies, which has now made Indian startups wary. 

Fearing an eventual rollout of such mandates to startups, as many as 132 Indian founders wrote a letter to TRAI chairman PD Vaghela in September, cautioning him against the implementation of such a move. 

Apprehensive that the proposed recommendations may ‘tilt the balance of power’ in the favour of telcos and apps of their choice, Indian startup founders publicly slammed any such proposition and raised alarm over violation of net neutrality. Trading barbs publicly, some tech entrepreneurs equated the proposed network fee with ‘hafta vasuli’ (extortion money), while others warned of George Orwells’ 1984-esque dangers. 

On top of that, industry bodies of the two sides continue to train guns at each other as alarm bells have gone ringing across the Indian startup ecosystem. The result has seen the Indian startup community band yet again to protect their interests against the onslaught of telecom operators.

Be it the violation of net-neutrality or being charged for network costs, Indian startup founders believe that their fears are not unfounded. So, what’s making them so restless?

Fear 1: Startups Dread The Network Cost Bomb

Indian startup founders are heavily averse to the idea of being saddled with network fees. The rationale is led by concerns that telecom operators will eventually roll out the payment diktats to startups and smaller players, which may impede the digital innovation ecosystem. 

To put things in perspective, operators currently have pitched for imposing a network cost on OTT platforms based on the traffic consumed by such platforms. Bharti Airtel has been a bit precise in approach, telling TRAI that all traffic originators that exceed 5% bandwidth occupation at peak hours, measured at an individual operator network level, would have to pay such charges. 

Speaking to Inc42, Vishwas Patel, joint managing director of fintech startup Infibeam Avenues, said that the network fee proposal simply entails gatekeeping. He believes that once the revenue-sharing proposal is approved, nothing will stop the telcos from slapping similar policies on smaller players and startups. 

Similarly, several startup founders believe that the proposal may lead to additional compliance burden and further squeeze the revenue margins of smaller players in the digital ecosystem. 

In addition, while big techs with deep pockets may easily pay such charges, it would become difficult for smaller companies and emerging startups to sustain if such a proposal is mandated. 

Fear 2: Net Neutrality At Stake

In what can be seen as the biggest fight in the country over net neutrality since 2016, startups allege that ‘fair-share fee payments’ undermine the basic tenets of net neutrality. Making their case before TRAI, the founders termed teclos’ recommendations on network fee as discriminatory and antithetical to the principles of net neutrality in India. 

“… The precedence that such discriminatory practices will set will impact our prospects in India and abroad, and greatly harm the vision behind Digital India…. These initiatives (such as Startup India) aren’t complete without the support for Net Neutrality – a principle that assures telecom or internet service providers don’t discriminate for or against online apps and services, on the basis of availability, speed, or cost of access, leaving that choice to the end user alone,” added the founders in their letter to TRAI. 

Startups believe that imposing any such diktats would put additional compliance mandates on startups and would be directly at odds with net neutrality principles. Citing his contention, Patel told Inc42 that imposing network fee mandates may lead to some players not being able to pay such charges. He further asked if telcos would block access to OTT platforms that are not able to pay the charges and if such a move will not amount to gatekeeping and flouting net neutrality norms.

Wint Weath’s Ajinkya Kukarni feels that any slight diversion from net neutrality would push the country down the road of ‘1984’, citing the Orwellian novel that explores the themes of authoritarianism and mass surveillance of people and their behaviour.

Others believe that telcos are merely pipes for transmission of data and ought not be allowed to impose cost mandates on any company. 

While telcos have gone overboard in claiming that their recommendations do not violate net neutrality, big names in the Indian startup world, including Paytm’s Vijay Shekhar Sharma, Zerodha’s Nithin Kamath, and Matrimony.com’s Murugavel Janakiraman, have publicly pitched for a neutral internet. 

Fear 3: Apprehensive Of The Telecom Licence Raj

Another key aspect that has left startups high and dry is telcos’ stand for an extended regulatory regime encompassing digital platforms and OTT players. 

Reiterating their demand, operators seek that OTTs should also be liable for similar licensing requirements and regulatory scrutiny. Telcos base their contention on the fact that communication apps also offer the same services, be it calling or messaging, to users yet are exempted from regulatory compliance. 

On the other hand, startups state that internet services are already regulated under the IT Act, 2000. They further claim that online services are fundamentally different from telecom services and merely complement the latter. 

The biggest contention, however, of the startups seems to be that telecom service providers would yield the biggest power if OTTs are brought under regulatory purview. The homegrown digital players believe that telcos would ‘essentially have the power to tilt the playing field to favour’ an app or website.

Indian startups believe this would inevitably lead to discrimination, non-level playing field, entry barriers, and increased compliance burden for digital companies.

“… Telecommunications licensing requirements, if extended to internet applications and services, may impose onerous obligations on internet services, including costly legal compliances, and impact key product decisions, which may harm India’s vibrant startup ecosystem…,” the founders wrote in a letter to TRAI. 

Fear 4: Not The Birds Of Same Feather

Indian startups and OTTs fear that they will eventually be treated on par with telecom  operators despite glaring dissimilarities between the two. 

However, telcos argue that internet-based communication services have substituted traditional calling, eating into their revenues and profits.

In retort, startups have termed these claims unfounded, saying there are inherent structural and functional differences between telecom operators and OTTs. The founders even went on to claim that categorising OTT services as ‘substitute services or segmenting them as messaging, video and other apps’ is incorrect. 

Citing the very nature of how the internet operates, Indian founders also claimed that startups pay for hosting services and for sending and receiving content online to edge providers. Startups also claim that users themselves are requesting access, rather than the assumption that platforms themselves are generating the traffic. 

“The internet is not a simple two-sided market. Ours are internet services which consumers demand, and are delivered via a complex network of networks called the internet, and not value added services which are delivered by telecom operators. We host our services and pay for sending and receiving content via the Internet to our edge ISP…,” added the letter by startups. 

Additionally, startups fear that allowing price differentiation based on content accessed would ‘militate’ against the open architecture of the internet. In simple words, allowing telcos to charge differently for one service would compromise the entire architecture of the internet where multiple stakeholders are involved in processing the data.

Treatment at par with telcos might open a can of worms for startups and OTT platforms be it the heavy licensing regime or regulatory oversight that they are currently more or less not mandated to adhere to. As Wint Wealth cofounder and CEO Ajinkya Kulkarni told Inc42 recently, internet is the biggest utility and ought to be neutral. 

Fear 5: A Highly Uneven Playing Field 

The biggest reason that appears to be giving sleepless nights to startup founders is supposition that proposed recommendations by telcos may adversely impact the homegrown startup ecosystem.

Startup founders have time and again said that imposing network costs would favour ‘large multinational conglomerates’ who can afford to adapt to such regulations. They further claim that giving telcos the ‘key’ to control factors such as calculation of these proposed bandwidth costs would harm and ‘impact the thriving’ Indian startup ecosystem. 

Echoing a similar sentiment, Zerodha cofounder Nithin Kamath said that the exponential growth of the Indian technology and startup ecosystem was the result of a neutral internet and that the destiny of the country was tied to the internet remaining open, accessible, and neutral for everyone. 

Others fear that imposing additional cost mandates could hit the top line of Indian startups, making them a less attractive bet for investors globally. As funding winter already takes the sheen off the ecosystem, any additional blow could mean that funding may further dry up and may mean an adverse impact on foreign investments and innovation. 

Besides, imposing network costs could mean OTT platforms imposing additional costs on end-customers. In a price-conscious market such as India, that could have disastrous implications for a company looking to scale up operations amid intensifying competition from peers. 

As the fight erupts into a bigger battle between telecom operators and startups, it remains to be seen which side TRAI turns to. For now, the startup ecosystem is waiting with bated breath as founders continue to have sleepless nights, fearing what future holds for them. 

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