Do Not Put New Wine into Old Bottles: Does the Telecom Framework Need to Change with OTT?
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Presentation at the IIP-CITI workshop on May 30, 2013
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Do Not Put New Wine into Old Bottles: Does the Telecom Framework Need to Change with OTT?
- 2. OTT markettelecom market OTT market Focus of my presentation: OTT telcos voice text video game other content dumb pipe textvoice video game other content dumb pipe OTT video OTT telcos
- 3. Challenges ahead I. Concern for competitive neutrality due to mismatching between the market reality and the regulatory framework II. Possibility of a new source of monopolistic leverage III. Insufficient protection for end users
- 4. Addressees of the Telecom Business Act of Japan Telecommunications Carriers (Telcos) Everyone Others Prohibition of censorship (Article 3) ✓ Protection of secrecy (Article 4) ✓ ✓ Fairness in use (Article 6) ✓ Universal service (Article 7) ✓ Essential communications (Article 8) ✓ Market entry (Article 9‐18) ✓ Tariff control (Article 19‐31) ✓ Interconnection (Article 32‐39) ✓ International agreement (Article 40) ✓ Facility control, numbering plan ✓ ✓
- 5. “through the use of telecom facilities” • According to the MIC, • Telecom businesses that use telecom facilities located within the Japanese territory are under the supervision of the TBA. • When telecom facilities are located outside Japan but controlled by an office located in Japan, such a business is also under the supervision of the TBA.
- 6. Lack of competitive neutrality Registered telcos Notified telcos Not registered or notified NTT East NTT West NTT docomo KDDI Softbank J:com Facebook Japan (SNS) Microsoft Japan (Hotmail) mixi (SNS) GREE (SNS) NHN Japan (SNS, VoIP) Twitter (messaging) Google (SNS, Gmail) Article 4.(Protection of Secrecy) i. The secrecy of communications being handled by a telecommunications carrier shall not be violated. ii. …
- 7. Common, but inefficient solutions • Obtaining voluntary cooperation from OTT‐telcos • Not certain that the MIC can obtain cooperation from OTT‐telcos. • Revising the TBA or introducing a new law • A written law/regulation can soon lose its effectiveness. • OTT‐telcos can change much faster than a government drafts a law. • Making new laws or revising old ones whenever exceptions appear will damage the predictability and the stability of the legal framework.
- 11. LINE is a part of everyday communication. 0% 20% 40% 60% 80% 100% Male over 40 Male in 30s Male in 20s Male in teens Female over 40 Female in 30s Female in 20s Female in teens Every day 4-5 times a week 1-3 times a week Once in biweekly Once per month Source: LINE Corporation (http://linecorp.com/ads/pdf/DF39EDAE-A64C-11E2-B586-23FE8142F988)
- 12. LINE, a substitute for conventional telecom services Q LINE is currently expanding its services beyond its original free VoIP and texting services. What do you think about this? (n = 1,000) 8.4% 32.0 % 16.4 % 30.6 % 12.6 % I do not want the new services because they are annoying to me. I will not use the new services because they are unnecessary to me. The new services have to be improved to be more user-friendly. I want more new services because they seem attractive to me. I do not have any particular complaint. Source: Compiled using data from JustSystems Corporation (http://www.fast-ask.com/report/report-line-20120925.html)
- 16. Economic value of personal information Estimation of WTA Value of “Amazon.co.jp” brand 7,167.1 yen (approx. $72) Value of “Rakuten” brand 7,371.2 yen (approx. $74) Proper treatment of personal ID 7,281.7 yen (approx. $73) Proper treatment of purchasing record 6.881.1 yen (approx. $69) Proper treatment of browsing record 3.376.4 yen (approx. $34) N Log Likelihood (LL) Restricted LL McFadden Pseudo R2 1440 ‐1,528.488 ‐1,582.002 0.0338264 Switching costs In a saturated market, this will give a huge competitive advantage. An indication of end users’ high evaluation of personal information.
- 17. Factors that significantly influence monetary value Value of “Amazon.co.jp” brand Value of “Rakuten” brand Proper treatment of personal ID Proper treatment of purchasing record Proper treatment of browsing record Age +** +** ‐*** Purchasing frequency +*** +*** Average purchased value N Log Likelihood (LL) Restricted LL McFadden Pseudo R2 1408 ‐1,458.779 ‐1,546.846 0.0569330 Note: *, **, and *** mean p < 0.10, p < 0.05, and p < 0.01, respectively. Switching costs increase as the purchasing frequency increases. Because of the technical difficulty of designing the questionnaire sheet, the survey was conducted with e‐commerce users, not with OTT‐telco users; therefore, we need to be cautious in translating the results. More secure position in the market Less competition
- 18. Insufficient protection for end users • Although look similar, there are clear differences between traditional and OTT‐telecom services. • OTT services are not bounded by the secrecy of communications. • In an emergency, telcos must prioritize “essential communications,” while OTT‐ telcos need not. • OTT‐telcos do not have a legal duty to disclose terms and conditions to end users, and are not obliged to handle users’ complaint properly. • This situation is not well shared with ordinary consumers. • If the competition is not sufficient, OTT users may suffer greater disutility.
- 19. Proposals I. Concern for competitive neutrality II. Possibility of monopolistic leverage III. Insufficient protection for end users
- 20. Challenge #1: Competitive neutrality • To construct the definition of OTT‐telcos based on the service specifications their outputs should have in the end. • Not based on the features the operator should have or how their services are produced • This can maintain usability regardless of the changes in underlying technology. • We have to focus on the retail market not on the wholesale market. • This does not mean a return to the traditional sets of natural monopoly regulations. • Considering the possibility of easy market entry, we can rely on market dynamism for optimal resource allocation.
- 21. Challenge #2: Monopolistic leverage 1. A separation between the OTT‐ application section and the underlying section and enforce open access regulation between them 2. An open access to personal information database These can have a destructive impact on OTT’s profitability, and thus may be better practiced only when the monopolistic behavior of a dominant OTT player starts to cause a serious concern. Access Network Core Network OTT Application Servers Dumb pipe layer Service layer Personal Information Database
- 22. Challenge #3: User protection • There are many things a government can do. • But, in a free market economy, it is better to use the market dynamism. • incentivize OTT players to disclose the necessary information • enable end users to choose whatever they want. • Consumers need to have a corresponding level of literacy. • Enlightening campaign • Subsidies for volunteer helpers • An introduction “OTT sommeliers” who can translate technical parameters into plain language.
- 23. Borderless nature requires global cooperation • Owing to the borderless and facility‐less nature of OTT players, any initiatives cannot produce any meaningful outcome if executed only by a single telecom authority. • A window will open for regulatory arbitrage. • If we want to reject the control of the Internet ecosystem by an inter‐ governmental organization, and keep it under the multistakeholder‐ ism, establishing an international voluntary or co‐regulatory cooperation must be an urgent concern.
- 24. Do Not Put New Wine into Old Bottles Does the Telecom Framework Need to Change with OTT? Toshiya Jitsuzumi jitsuzumi@econ.kyushu‐u.ac.jp i. Competition neutrality ii. New monopolistic leverage iii. Customer protection 1. Retail market focus 2. Open access to OTT servers and information DB 3. Consumer education Popularization of OTT telcos Possibility of regulatory arbitrage