1. New Courses for New
Horses:
Alternative Approach for an OTT-based
Broadband Ecosystem
Toshiya Jitsuzumi, Dr.,
Professor, Chuo University

2. @PTCouncil #PTC18
Background, purpose and agenda
Purpose
• To summarize the issues caused by
the increasing dominance of OTTs,
and propose a new set of policy.
Agenda
1. The current situation
2. Issues for policymakers
3. Proposal for policymakers
4. Conclusion
Background
• The rapid development of ICT
has led to the emergence of OTTs.
• Broadband policies have to be
adjusted to these new
phenomena.
• OTTs can improve market
efficiency.
• OTT can cause anti-competitive
issues.

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OTT market
textvoice video game
other
content
dumb pipe
platform
After hyper-giants
3 types of OTT services and OTT players
• OTT services
• OTT telcos
• OTT CAPs
• OTT platforms
• OTT platformers
OTT markettelecom
market
voice text video game
other
content
dumb pipe
OTT CAPs
OTT
telcos
OTT CAPs
platform
OTT platformers
OTT
telcos
Before hyper-giants

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Economic impact of OTTs
• As the entry barrier into the OTT business is low, the number of OTT
players and their economic significance are increasing rapidly.
Source: Created from Fig. 2-2-1-2 in MIC (2016b)
Wearable Service
Wearable Device
Pay Video Streaming
e-commerce
Sensor Device
Cloud Service
Fixed Network Facility
Date Center
Pay Music Streaming
Mobile Data Service
Mobile Network Facility
Mobile Voice Service
Tablet PC
SmartphoneMobile PC
Desktop PC
Upper Layer
Lower Layer
Market Size (in million$)AnnualGrowthRate
• As of 2015, the market
sizes of many OTTs are
smaller than the traditional
network operators and
device manufacturers, but
their annual growth rates
are much higher. (MIC,
2016b)

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2. Better performance
• OTTs are free from legacy infrastructures and can easily adopt state-of-the-
art technology; thus, can realize higher efficiency and provide more
benefits to the consumers.
3. More competition
• OTT players can exert a significant competitive pressure on existing
network operators.
CAPs
Platforms
Equipment
Devices
Network
services
1. Regime change
• OTT is taking the
place of
traditional
telecom players.
Impacts on the broadband ecosystem
2. Better performance
• OTTs are free from legacy infrastructures and can easily adopt state-of-the-
art technology; thus, can realize higher efficiency and provide more
benefits to the consumers.
3. More competition
• OTT players can exert a significant competitive pressure on existing
network operators.
Prior to 1995 1995 - 2005 2005-present

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Related issues
• Public utility regulations
• Interconnection rules among operators
• Asymmetric regulations on SMPs
• Business domain control on SMPs
• Open network
• Network neutrality
• Interconnection rule among ISPs
• Freedom of speech of platforms
• Freedom of speech of creators
• Incubation policy for creators
Network operators
OTT platformers
Internet service
providers
OTT telcos, OTT CAPs
OTT layer
Network layer
• X-neutralities
• Content neutrality
• Search engine neutrality
• Competition policy
• Level Playing Field Argument
• Cyber security
• Digital divide
Industrial policy for OTT players
• Competition policy
• Level Playing Field Argument
• Cyber security
• Digital divide

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• The success of OTT telcos has
led the traditional companies to
start calling for a level playing
field.
• Traditional “public utility”
framework rests upon three
conditions:
i. natural monopoly,
ii. national minimum
iii. network effect
Level Playing Field Argument
• The success of OTT telcos has
led the traditional companies to
start calling for a level playing
field.
• Traditional “public utility”
framework rests upon three
conditions:
i. natural monopoly,
ii. national minimum
iii. network effect Regulation for natural
monopoly
Regulation for having
network bottleneck and/or
spectrum license
Regulation for having
network effect/externality
Price regulation and
Entry/exit regulation
Rules for unbundling,
interconnection, and/or
standardization
Rules for interconnection
Transparency rule
Regulation for being a
national minimum
Universal service
obligation, USF
Regulation for being a
communication media
Communication secrecy,
Neutrality rule

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• The success of OTT telcos has
led the traditional companies to
start calling for a level playing
field.
• Traditional “public utility”
framework rests upon three
conditions:
i. natural monopoly,
ii. national minimum
iii. network effect
Level Playing Field Argument
• The success of OTT telcos has
led the traditional companies to
start calling for a level playing
field.
• Traditional “public utility”
framework rests upon three
conditions:
i. natural monopoly,
ii. national minimum
iii. network effect
Regulation for having
network effect/externality
Rules for interconnection
Transparency rule
Regulation for being a
communication media
Communication secrecy,
Neutrality rule
Regulation for being a
content application
provider
Freedom of speech,
decency rule

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Related issues
• Public utility regulations
• Interconnection rules among operators
• Asymmetric regulations on SMPs
• Business domain control on SMPs
• Open network
• Network neutrality
• Interconnection rule among ISPs
• Freedom of speech of platforms
• Freedom of speech of creators
• Incubation policy for creators
Network operators
OTT platformers
Internet service
providers
OTT telcos, OTT CAPs
OTT layer
Network layer
• X-neutralities
• Content neutrality
• Search engine neutrality
• Competition policy
• Level Playing Field Argument
• Cyber security
• Digital divide
Industrial policy for OTT players
• Network neutrality

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Net neutrality is an interface problem
• “How to guarantee the openness or neutrality for the usage of
underlying facilities” has become a critical policy issue in the world of
data-hungry content/application.
• This issue has two facets:
1. how to control the congestion and
finance the network investment
2. how to regulate the anti-competitive
potential of the network operators

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Issues in the OTT platformer layer (1/2)
1. Several neutrality concerns in their business practices
• Various neutralities (Easley et al., forthcoming)
• Net neutrality
• Search neutrality
• Operating system neutrality
• App store neutrality
• Ad block neutrality…etc.
2. Data-driven monopoly
• Several policymakers have recently expressed some concerns.
“e2e neutral” services

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Issues in the OTT platformer layer (2/2)
3. Difficulty in disciplining the
multisided business model
• Multisidedness enables
platformers to cover the cost
of a given service by users of
different services.
Traditional price control is useless.
The traditional regulatory framework implicitly assumes that
the cost of a service has to be recovered directly from its users.

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• powerful influence to transform
the whole ecosystem, etc.
• Since OTTs face very few obstacles
to relocate and move away in
search of a better policy
environment, it is important to
maintain regulatory parity.
Risk of regulatory shopping
• Industrial policies should reflect the OTTs’ unique characteristics:
• a lack of huge network ownerships
• weak financial resiliency
• powerful influence to transform
the whole ecosystem, etc.
• Since OTTs face very few obstacles
to relocate and move away in
search of a better policy
environment, it is important to
maintain regulatory parity. Source: http://www.yourdictionary.com/images/definitions/lg/12171.parity.jpg

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As a “wait-and-see” approach is not possible,
policymakers must act now.
But as we cannot prepare everything on an ex-ante
basis, policymakers should be unobtrusive.
1. Since all issues are interrelated, policymakers need to adopt
a holistic approach, cooperating with other stakeholders.
2. Theoretical analysis is still scarce in the field, except
analysis relating to net neutrality.
3. The business model and underlying technology of OTTs are
rapidly changing.
Concerns in policy development
1. Since all issues are interrelated, policymakers need to adopt
a holistic approach, cooperating with other stakeholders.
2. Theoretical analysis is still scarce in the field, except
analysis relating to net neutrality.
3. The business model and underlying technology of OTTs are
rapidly changing.
As a “wait-and-see” approach is not possible,
policymakers must act now.
But as we cannot prepare everything on an ex-ante
basis, policymakers should be unobtrusive.

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Therefore,
• The first priority then should be not to jeopardize the smooth
development of the broadband ecosystem and accept the cost of
failure within a reasonable range.
• It is also important to minimize the possibility of “government failure”
due to the paucity of related data and information asymmetry.

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Concept design of OTT policy framework
OTT-based
broadband
ecosystem
SMP regulation only
on giant players
Level playing field rule
as long as there is
economic substance
This is where
policymakers
should focus
Input through co-regulation
Consumers
Retail
market
• Transparency requirement
• Consumer education
Anti-trust safeguard
Due to the Moore’s Law, the supply-side
situation changes too fast for the
policymakers to follow; thus leave the
ecosystem to the market dynamism unless
anticompetitive harm becomes clear.

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No one-size-fits-all solution
• Due to the lack of sufficient policy experience and academic literature
in this field, a case-by-case approach should be followed.
• For example, it is not appropriate to design a uniform policy for the
zero-rating issue.

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Conclusion
Emerging OTT-
based
ecosystem
• Moore’s law
• Ubiquitous broadband network
Policy
challenge
• Establish a level-playing field
• Interface problem (i.e. X-neutrality)
• Prevent anti-competitive behaviors
• Maintain international parity
New Courses
for New Horses
• Ex-ante basis
• Focuses primarily on the consumer side
• A case-by-case approach
• Co-regulation feature to prevent information asymmetry
• A fact-driven approach
OTT-based
broadband
ecosystem
SMP regulation only
on giant players
Level playing field rule
as long as there is
economic substance
This is where
policymakers
should focus
Input through co-regulation
Consumers
Retail
market
Transparency requirement
Consumer education
Anti-trust safeguard