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An Over-The-Top Approach to Internet Regulation in Developing Countries

DEEPLINKS BLOG
October 23, 2017

Increased smartphone usage and availability of wireless broadband has propelled the use of Internet based platforms and services that often compete with similar services based on older technologies. For example services like Facebook, Skype and WhatsApp that offer voice or video calls over the Internet compete with traditional SMS and voice calls over telecom networks. Such platforms have gained in popularity particularly in developing countries because calling over the Internet is far cheaper than making calls on telecom networks. Online video streaming and TV services like Netflix and online similarly compete with traditional broadcasters and network providers.

These online applications and services are transforming traditional sectors and changing the economic landscape of the markets. The increasing popularity of such apps and services, often referred to by telecommunications regulators as "Over-the-top" or OTT services, brings new regulatory challenges for governments. Historically, most of these services have not required a licence or been required to pay any licensing fee. As the use of such services picks up in developing countries, governments are rushing to create rules that would subject OTT providers to local taxation, security, and content regulation obligations—often under pressure from telco incumbents who are seeking protection from change and competition.

Taxing Online Platforms

In August 2017, the Indonesian government via the Ministry of Communication and Informatics (MCI) unveiled a liability framework for OTT providers [doc]. The sweeping regulations cover a whole slew of companies including SMS and voice calls and email services, chatting and instant messaging platforms, financial and commercial transaction service providers, search engines, social network and online media delivery networks, and companies that store and mine online data. The regulation, which is currently under review, makes it mandatory for offshore businesses to establish a "permanent establishment" either through fixed local premises or by employing locals in their operations in Indonesia. Transnational companies are also required to have an agreement with an Indonesian network provider, and use local IP numbers and national payment gateways for their services.

Considering current trade negotiations aimed at outlawing data localization, these operational obligations for OTTs cement the view that the Indonesian government is attempting to create a local territorial nexus for online transactions and activities, allowing them to be taxed and controlled. The draft MCI regulations also require online platforms to create a "censor mechanism" [sic] to filter and block "negative" content including terrorism, pornography and radical propaganda. While e-commerce and marketplace platforms enjoy immunity from content related obligations in Indonesia, the new regulation effectively dismantles this safe harbor framework.

Worryingly, the regulation outlines a system of sanctions where the government can order telecommunication operators in Indonesia to use bandwidth management measures to take action against companies that violate the rules. Bandwidth management refers to the process by which the telecommunication operators manage traffic on their network, and can include traffic engineering measures such as limiting or throttling service traffic or the provision of priority access for certain services within certain periods. Such regulations would therefore likely violate net neutrality, and it is also unclear how this bandwidth management would be implemented. For example, the Ministry has not clarified safeguards to limit telecommunications providers from voluntarily conducting bandwidth management without a formal notice if it determines non-compliance with the law.

Soft-Peddling Censorship

Similar efforts to regulate online platforms are underway in Thailand. The National Broadcasting and Telecommunications Commission (NBTC) has committed to create a "level playing field" between OTT service providers and traditional broadcasting and telecommunications industries. In April 2017, it suggested introducing bandwidth fees for online content providers, and has also proposed bringing OTT service providers under an operating licence framework, taxing them for transactions by local merchants and making them liable for illegal content. In July 2017, the Thai government issued an ultimatum to OTT services to register with the national telecom regulator or face getting slapped with sanctions such as bans on advertising that would threaten revenue growth.

The Thai regulator is exploring a "complaints-based" framework of regulation and has set up a control list of the top 100 content creating companies that are required to establish local offices and be registered as entities in Thailand. Allegedly, the efforts to regulate OTT providers are driven by the dramatic rise in the revenues being generated by them. A study conducted by the NBTC found that free OTT services had earned combined advertising revenue of 2.16 billion Thai baht in 2016, 70% of which stemmed from YouTube. Accordingly, the general policy recipe outlined by the regulator is aimed at increasing taxes collected from online platforms.

Efforts to create a "level playing field" could also be interpreted as measures to empower the regulator to more easily monitor and censor content that the government is finding difficult to regulate. The Thai government has been unsuccessfully trying to pressure to online intermediaries to remove allegedly illegal speech including proposing shutting down sites for non-compliance with takedown requests. The proposals to regulate OTTs can be seen as a backhanded move to give the regulator the authority to demand the removal of content the military-run government considers illegal without waiting for a court order. Parallel to the efforts of regulating OTTs, the National Reform Steering Assembly has introduced an 84-page social media censorship proposal. If approved the rules would require fingerprint and facial scanning just to top-up a prepaid plan, in addition to existing mandatory SIM card registration and linking mobiles to national identities. Commentators say the proposed rules are similar to those in use in China and Iran.

In India, regulators are considering proposals to require OTT providers to be placed under a telecom licensing-style regulatory framework. The telecom regulator has been organizing consultations on the issue since March 2015, however its stance on the matter is not clear. Reports suggest that regulating OTT may be a non-issue for the regulator in view of the future possibility of carriers to offer voice services through apps. However, telecom and network providers that stand to benefit from OTT regulation are pushing for interconnection agreements. The Department of Telecom (DoT) is reported to be working on a regulatory framework for services like WhatsApp, Facebook, Skype and WeChat that would subject them to obligations similar to those outlined for telecom service providers.

The phenomenon of regulating OTTs is not limited to Asia. In Latin America, several countries including Uruguay, Costa Rica, Colombia, Argentina and Brazil are considering legislative changes to enable the taxing of OTT players. In Argentina, the government has issued a set of principles for telecommunications regulation that create obligations for registration of Internet intermediaries. Ahead of the Presidential elections in 2018 and with mounting opposition to his regime, the Zimbabwean President Robert Mugabe has created a Cyber Security, Threat Detection, and Mitigation Ministry to reign in threats emanating from social media. The government is also pressing ahead with a Computer and Cyber Crimes Bill, a comprehensive legislation that would allow the police to intercept data, seize electronic equipment and arrest people on loosely defined charges of “insurgency” and “terrorism.”

Under increasing pressure to rein in the use of online platforms the regime has taken several measures to curtail the ability of activists and opposition to organize themselves, including raising prices on cellphone data and cutting off access to the Internet. Earlier this month, the Cybersecurity Ministry issued an order that requires all WhatsApp groups to be registered and administrator of the group to have government level clearance. The rules also make membership of groups that do not have necessary clearance or licensed administrator a criminal offence. As the order clarifies members belonging to unqualified groups will be "jointly and severally liable" for belonging to a group not registered with the cyber security ministry. Update: this has since been revealed as a hoax.

The move to regulate WhatsApp is especially significant given that the messaging service is the default window to the Internet for most Zimbabweans. In 2010, fewer than 5 percent of Zimbabweans had access to the internet, by early 2016, nearly 50 percent did, with most people connecting to the internet through their cell phones. A report by Zimbabwe’s telecoms regulatory body shows that the number of people using WhatsApp for voice calls has been on the rise. The government's tough stance on the messaging platform has got digital rights activists worried that the regulation will have a chilling effect on freedom of expression.

Towards An International Framework for Regulating OTTs?

So-called OTT applications and services are the most visible part of the Internet for ordinary users. The rules and liability that are created for these applications and services impact freedom of expression, net neutrality, consumer rights and innovation. Therefore, discussions and rules on OTT regulation is at its core a debate about how the Internet should be regulated. Recognizing the global nature of online platforms, the International Telecommunications Union (ITU) has stepped in to explore global multilateral framework for OTT services and applications.

The telecom arm of the ITU whose primary function is to develop and coordinate voluntary international standards, known as ITU-T Recommendations, has established a study group public policy issues related to the Internet. The technical study group includes a mandate to weigh in on several Internet-related technical and economic issues including "charging and accounting/settlement mechanisms" and "relevant aspects of IP peering". Last year, the study group adopted text encouraging governments to develop measures to strike an "effective balance" between OTT communications services and traditional communications services, in order to ensure a "level playing field" e.g., with respect to licensing, pricing and charging, universal service, quality of service, security and data protection, interconnection and interoperability, legal interception, taxation, and consumer protection.

In May 2017, ITU Council Working Group on International Internet-related Public Policy Issues (CWG-Internet) launched an open online and physical consultation on OTTs. The working group will evaluate opportunities and implications associated with OTT including policy and regulatory matters. It considers regulatory approaches for OTTs that ensure security, safety and privacy of the consumer and will work towards developing model partnership agreements for cooperation at the local and international level.

The physical consultation took place in September and received inputs from a wide range of stakeholders. During the World Telecommunications Development Conference (WTDC)—the main conference of the ITU’s Development sector, ITU-D—which took place in Argentina during October 2017, several governments have sought to expand the ITU Internet public policy mandate. As we approach the ITU’s 2018 Plenipotentiary Conference, or “Plenipot" we can expect conversations on regulatory frameworks to escalate in the ITU. However developing rules in a multilateral framework of the ITU may not be the most appropriate way forward.

As Public Knowledge notes, the structure of the ITU renders itself vulnerable to harmful types of politicization, as states and regional coalitions seek to leverage this forum to grab greater control over Internet policy and standards development. Unlike the Internet Corporation for Assigned Names and Numbers (ICANN), the Internet Engineering Task Force (IETF), or the Internet Governance Forum (IGF), the ITU isn’t a multistakeholder community. The only relevant actors at the ITU are Member States and although private industry and civil society may contribute to technical work, they can only participate as nonvoting sector members. With its structural lack of transparency and openness there is plenty opportunity for ITU public policy processes to be co-opted by member states to validate problematic policy or standards proposals.

In an increasingly digital world where transnational global corporations shape content and speech, governments are at an inflection point in their policy choices for regulating online platforms. In seeking to create a "level playing field" between OTT providers, and legacy media and network providers, governments may end up introducing rigid frameworks that stymie innovation and competition or cause irreversible consumer harms. There may be various valid public interest reasons to regulate OTTs such as to ensure their compliance with privacy standards and net neutrality rules. But such regulations should be made on a targeted basis. Imposing a strict and unyielding regulatory framework based on telecommunications regulation and licensing goes further than this, and risks becoming a vehicle to protect legacy telcos and to enact content censorship.

 

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