Impact of India's Telecom Bill on startups, innovation and consumers

The Draft Indian Telecommunication Bill, 2022 was released by the Department of Telecommunications in September 2022 for public feedback. The Bill is likely to have a significant impact on businesses and consumers if adopted in its current form, and to discuss these concerns, Rootconf organized a series of discussions. On 30th June 2023, stakeholders and civil society representatives came together for an online event to discuss key concerns and share their recommendations. The panelists in this event were:

• Parag Kar (ex-VP, Qualcomm India),
• Mahesh Uppal (Telecom policy consultant),
• Gurumurthy Konduri (Ozonetel),
• Arnav Gupta (former Editor of Fragments and DroidconIN on hasgeek.com), and
• Anushka Jain (Internet Freedom Foundation).

Kunal Raj Barua and Mousomi Panda from the Aapti Institute also presented their report on the Bill. The event was moderated by Amlan Mohanty (Lawyer and tech policy advisor).

This report summarizes the key points and recommendations that were discussed during this event.

Update 1: Following this series of discussions and awareness being raised around concerns regarding the broad definition of technologies falling under the purview of this Bill to include over-the-top (OTT) platforms, on 5th August 2023, the Union Cabinet relaxed regulations on OTT communication services. This was one of the key issues in the draft Bill which, as a result of public consultations and efforts by tech communities and civil society actors, was considered by the Cabinet. Read more here.

Update 2: On 18th December 2023, the Telecommunications Bill, 2023 was introduced in the Lok Sabha based on a recommendation made by the President. Amidst existing concerns regarding the Bill such as increased surveillance, a return to license raj, privacy violations, censorship, etc., it is being introduced as a finance bill. Currently, it also meets the requirements for being declared a money bill, which would enable the Lok Sabha to pass the Bill without approval from the Rajya Sabha.

I. Context-setting discussion on key concerns

1. Licensing

Whenever an entity is being licensed, it has to serve a set of objectives. The most important objective is to regulate the usage of certain bottleneck resources. If such resources are not regulated, it may lead to inefficient usage, hoarding by a few corporations, and wastage. All these three outcomes are clearly evident in the Indian telecom sector. However, the draft Telecom Bill also covers OTT platforms, and in this case, it is unclear what regulatory purpose this bill would solve. The main problem leading to licensing OTT players is impersonation. However, this problem is yet to be solved by existing players and asking new players to solve it is a huge contradiction. As a result, the licensing approach is currently heavily flawed.

Since this Bill covers a wide range of companies, it would impact the whole market. This would lead companies to raise prices, while the quality of service and innovation goes down since the market is completely captured by them. Hence it is also important to understand whether the market is sufficiently competitive or not.

Thirdly, the notion of a level playing field is very important. Ideally, only companies that are powerful enough to cause damage and prevent others from entering the sector should be regulated. In other words, the market should be free for all to enter and participate in and only the big corporations should be regulated.

2. Lack of competition

Due to over-regulation, the market would become uncompetitive where big corporations gain control over resources as a result of being able to get a license. Similarly, smaller companies and start-ups may not have the means to obtain one. Since there would be no threat for the big corporations and no means for start-ups, the need for utilizing resources on innovation will no longer be there.

3. Technology and innovation

The value of technology is in its ability to generate more profits and revenue for the business. If India is to become a technology giant, the market needs to be competitive, which it is not today due to the past regulatory action. Without developing the market, there is no incentive to innovate. Secondly, bottleneck resources should be available for everyone’s use in an affordable and optimal manner, and its prices should not be dependent on big corporations. The third important thing is to participate in the standard development process on larger technical governance issues globally.

II. Presentation of report on the draft Telecom Bill by Aapti Institute

Following the brief introductory conversation, speakers from the Aapti Institute presented their report on “Unpacking the Key Costs and Consequences of the New Telecom Bill”. The monetary and non-monetary implications of the draft bill on the various types of the stakeholders (businesses, users, and the government) have been summarized below:

1. Impact on Businesses

Some of the key and significant costs impacting businesses include:

• Licenses and Fees
• Telecommunication Development Fund (TDF)
• Spectrum Costs
• User Verification Costs (all of the services not only have to identify the users, but also undertake due diligence and data management for user verification, which requires significant technological upgradation)
• Interception Costs
• Compliance and Legal Cost

Some of the key non-monetary implications for businesses include the privacy and the business features of these platforms, frictions within the regulatory body, reduced time and capital to improve quality of services, and also the reduced efficiency and operational flexibility for many of these business platforms.

2. Monetary Impact on Users

The key monetary concerns for users are around affordability and access. Rising business costs could mean that the users will have to pay significantly higher to be able to continue using these communication services. While it is assumed that user verification does not have a significant cost, it does have a potential monetary and non monetary implication, which could also mean that people from vulnerable communities find it harder to use these platforms. Moreover, there are also provisions of fines for misrepresentation which may happen when multiple users share an online service.

The non-monetary implications for the user would be the lack of privacy or anonymity, the lack of platform choices, the awareness burden on the users, and the resultant high cost of information. There is a large amount of user hesitancy to continue on the platforms which are not considered to be private or secure enough. One of the other biggest concerns apart from privacy and anonymity is also about the data rights of the user, considering the weak cybersecurity guidelines and the lack of a data protection bill as of now in India. This is a cause of concern for data protection, data leakages, and misuse of personal data.

3. Impact on Government

Potential monetary concern for the government includes:

• Cost burden and capacity of government bodies and jurisprudence due to monitoring and auditing the large pool of service providers
• Regulation of ‘all telecommunication services’ would require a significant amount of capacity building
• Role of intermediary bodies and improved data management structures for interception and decryption of messages, and also user verification
• Improved protection protocols for citizens

A key non-monetary concern for the government remains the geopolitical sensitivities with the global service provider using which many of the affected business platforms connect Indian users with users who are based in other countries, which may have a different data protection regime. This would make it very difficult for businesses to undertake many of these provisions as there may be conflicts with regulations in other countries. Apart from that, there are also national security considerations around user data. In the bill, national security is being thought about from the perspective of the state. However, security also needs to be understood from the perspective of user rights, which means that there needs to be a balance between user rights and the national interests of the government.

The Aapti Institute report makes the following recommendations:

• Classification of entities by layer, and service type
• Finding minimum effective regulation, based on classification may be examined
• Considering adjacent and supportive practices of data management to balance national security, while protecting secure communications
• Enhancing collaboration between the private and public sectors

To access this report, please click here.

III. Panel discussion on the impact of the Telecom Bill on startups, innovation, and consumers

1. Effects of the bill on innovation and recommendations:

In the post compliance world, the market leader will actually spend their money to become compliant because they are not going to leave the market which they already lead. They make enough profits to pay a hefty amount of money for compliance and can also lobby the government to make sure the compliance does not really handicap them. On the other hand, new players in the market are generally unaware of the nitty-gritties of the regulations and do not have the same resources or connections as the market leaders. In order to have a level playing field, access to these licenses should also be made equal between new players and market leaders. Such a market would encourage innovation and start-ups to enter such fields.

2. Is the government regulating the wrong entity?

Instead of licensing all players in the telecommunications industry, only the bottleneck resources should be licensed. Once they are licensed, the users of those resources should not be further licensed because everyone becomes a user for someone else’s resource. Users of these resources and their users already meet certain requirements to be participating in this market. Licensing them as well would form a chain of excessive and endless licensing. Licensing should only be for resources which are scarce, in the public domain, and in need of state control. Technologies around communication such as in-app communication are used by almost all service providers and this too would fall under the overarching scope of the Bill. Regulations with such a wide scope are not practical for business or compliance.

3. Does convergence of technologies require a broader regulatory framework?

No. Most regulators across the world have abandoned licensing for almost any kind of services which do not require scarce resources. In most modern regulatory regimes, there is permissionless innovation and a permissionless providing of services. The Indian Telegraph Act came from the colonial era when there was only one service provider for telephony, which is a starkly different situation to what is there today. The main problem with the Telegraph Act was that it required licenses, i.e. prior permission to offer services, and this has remained in the draft Telecom Bill.

Instead what is required is the facilitation of convergence, which is to enable people to use the networks to its full capacity to allow it to be used in as efficient and as creative a way as possible. Again, this has not been done via the draft Telecom Bill and it tries to control the usage of these networks, rather than enable convergence. This, again, seeks to restrict innovation rather than promote it.

The Bill has other issues as well, such as the role of the TRAI and DoT, their powers, and even their ability to effectively implement these regulations are unclear. Regulations should be created to provide three kinds of protections - the protection of consumers, networks, and national security. Anything that falls beyond these three types of protection should not be regulated or licensed.

4. Effects of licensing on users

Since licensing increases costs for businesses to comply, it also results in an increase in costs for users. In addition to obtaining the license, companies also need to maintain the license and all the safeguards and the controls required for compliance, which is also a cost. This cost will also depend on the team size and extended measures for compliance. It will not only increase the organization’s cost, but will also require end users to comply and thereby increase their costs further. It is also recommended that there be a central e KYC register managed by a department with blockchain to avoid entities being questioned as to what validation they have done on their end users.

5. User rights under the draft Telecom Bill

The draft Telecom Bill was an opportunity for reform in user rights, specifically on surveillance and internet shutdowns. Some of the suggestions that the Bill should have included is how the surveillance architecture can be improved to protect user privacy, and provide transparency and accountability. There is currently no judicial oversight of the surveillance architecture in India. This is crucial since surveillance is increasingly being carried out without any transparency on how many interception orders are issued, why, and what they resulted in. Safeguards protecting the rights of individuals such as privacy needs to go hand in hand with national security. The situation regarding internet shutdowns is similar. There are a lot of suggestions that the Standing Committee on Communications and IT had given in its report on internet shutdowns, such as reviewing the legal regime for suspension of internet services, establishing a centralized database of internet shutdown orders, and ensuring that the composition of the review committee is diverse. However, none of these suggestions have been included in the Telecom Bill. The Supreme Court had also given directions in the Anuradha Bhasin decision that internet shutdown orders should be made publicly available, which has also not been included in this bill.

The concept of privacy is not something that is important to the Indian population in general, which has led to limited awareness on the topic. As a result, the conversation around protecting the right to privacy is at a very nascent stage in the government as well. Other rights and protections are prioritized over the right to privacy, such as traceability to reduce crime, national security, etc. These are issues for which Indian citizens would also be willing to give up their right to privacy. The conversation around which rights are being prioritized is important to work towards data protection and privacy.

6. Next steps on the Bill

It was recommended that a new draft Bill be introduced where licensing is restricted to the use of scarce resources and the government retains the right to deal with whatever harm electronic communications might cause. And I think that would be fair for the government to retain that right. But I think the nitty gritty of how they’re going about it, I think is retrograde, and will actually hurt the very things that they hope to actually protect.

IV. Key takeaways

1. Licensing needs to be restricted to scarce resources, and there needs to be a clear articulation of what those scarce resources are.
2. A clear articulation of what objectives are being solved from licensing is required, i.e. whether it is about impersonation, scam, or marketing. There may be less intrusive or onerous ways of addressing the same objectives rather than licensing which should be explored.
3. The burden of licensing is heavy on people who are building technologies in this sector. This ranges from operational issues, the financial implications of building these compliance systems out, second guessing whether a specific technology is meant to come within the scope of the Bill, etc.
4. Encouraging competitiveness within the local ecosystem will help the development of innovative technologies which can then be exported outside.
5. This Bill provided an opportunity to increase transparency and accountability regarding user privacy, internet shutdowns, and surveillance.
6. Ways to make compliance easier should also be explored, such as consolidated databases for KYC which reduces operational costs, but also achieve some of these objectives that the government is trying to strive for.
7. A more inclusive collaborative approach between different stakeholders will help in drafting a Bill that takes into account concerns and recommendations across the board.