The Convergence of Telecommunications and Media : Issues and Solutions

- C. Yamuna Menon and Radhika Goyal

All over the world we are seeing an attempt to consolidate Telecommunication and Media. In the US both AT&T and Comcast have entered the media space.[1] AT&T recently merged with Time Warner. Telecom players in the EU including BT, Altice, Verizon and Telefonica have made big bets for content.[2] In India too, in the year 2014, Reliance India Limited (RIL) announced that it was taking over Network 18 and its smorgasbord of interests including ventures in News Broadcasting, Magazines, Film, E-Commerce etc. While there were many concerns raised about a big corporation owning big media, what did not receive enough attention were the reasons Reliance was incidentally justifying the takeover- that of the synergies it hoped to achieve by owning sometime in the future both, a telecommunication giant and a news and media empire. It was forgotten that RIL also intended to play a “major role in the fourth-generation (4G) high-speed data transfer business.”[3] About five years later when Reliance Jio has ended up as the second largest telecom firm in terms of revenue,[4] it is time to look at how markets are impacted in such convergence of telecommunications and media.

Mergers in the light of tech convergence and end-user behavior attract significance especially since the way we are consuming media has tremendously changed with the accessibility of content on non-conventional platforms like smartphones, tablets etc. In the US an average person spends up to 300 minutes per day on their phone, while in India the number is 200 minutes per day.[5] A part of the credit goes to Reliance Jio itself, which lured over 100 million subscribers by offering one GB of free 4G a day.[6] Thus telecom is increasingly challenging the traditional distributors such as Cable TV/ DTH operators as the new ‘pipes’ for content delivery. In view of this change, industry experts have long advocated for this convergence between telecom and media stating “operators have relationships with their subscribers and content providers have a treasure trove of compelling assets (music, games, video, etc.), but have no direct relationship to the customer”.[7] For instance telecom companies could enter into agreements for “preferential access to the programming and digital content of all the broadcasting channels”[8] to reduce costs and benefit out of economies of scale and scope. However, the vertical integration and the factors that can aggravate negative competition effects surrounding such convergence cannot go unnoticed.

According to scholars, vertical integration can have pro-competitive result by one, elimination of double marginalization and thus leading to lower final prices and two, reduction of variety which might be welfare improving if there is elimination of excess variety.[9] However, examples in the market have displayed contrary results or outcomes. Distributors that control popular programming “have the incentive and ability to use (and indeed have used whenever and wherever they can) that control as a weapon to hinder competition”.[10] This has already resulted in antitrust action in other jurisdictions. For instance, according to the complaint against the combination of AT&T/DirecTV and Time Warner,[11] owning Time Warner’s popular and valuable TV network and studio including CNN, HBO, and Warner Bro will allow the merged company to charge its distributor competitors a higher rate for popular content. Where earlier if Time Warner charged arbitrary or high prices it would risk a black out by distributors, it can now rely on AT&T distribution networks and backing to ensure access to a customer base. This could mean the merged Time Warner/AT&T will have greater bargaining power with distributors allowing them to charge higher rents for content. Having exclusive distribution rights over popular content could even result in customers switching from their networks to AT&T.

Similarly, Network 18, a player in the content market, could with Jio’s backing, charge higher prices from other distributors. This could increase entry barriers for Jio’s competitors, further increase costs for their consumers, and could additionally increase Jio’s market share. This vertical integration by causing restrictions on the availability of Network 18’s content on other distribution networks can adversely affect this plurality of content for many consumers.

The effect on competition on account of convergence between telecommunications and media can be looked upon in the following manner:

There are already alarming signs. Reliance Jio “generates far more data traffic on its network than all of the other large telecom players combined”[12] and further that its share in the wireless broadband segment has reached an all time high of 51.6%.[13] This vertical integration could allow for Reliance to create an ecosystem where content from sources it chooses could be made more accessible without violating net neutrality.[14] If for instance Jio decides to provide a news aggregator app (with information from Network 18 owned organizations) as a default app on its networks,[15] it is possible for Jio users to could become wholly reliant on that app as a news source solely out of convenience, which can impact plurality of information for a Jio user,[16] also leading to higher market shares for Network 18, and thus negatively affecting competition in the media sphere. Moreover preferential access to such content could in turn increase market shares for Jio with anti-competitive effects in the telecom markets. This is one of the ways in which convergence of telecommunication and media creates a loop of increased market share for both players that speeds up the road to market dominance.

It is in the context of this issue that we also encounter a major regulatory gap. Statutory body concerned with the regulation of broadcast content is Telecom Regulatory Authority of India (TRAI). Under TRAI’s jurisdiction, distributors are only defined in terms of traditional distribution network operators, with no express recognition of telecom networks operators as distributors. This is despite recognizing that “the telecom networks can provide access to internet and broadcast content in addition to telecommunication services,”[17] and “the convergence taking place between broadcasting and telecommunication.”[18]Consequently, while TRAI recommends a variety of tools to prevent convergence of traditional distributors and content providers, when it comes to Telecom and Media, TRAI did not recommend any cross ownership restrictions at the time.[19] Almost six years since, no attempt has been made to introduce the same. At the same time no regulations exist which prescribe non-discrimination between Telecom network providers or expand the scope of distribution network operators to include Telecom network providers to ensure fair use.

Furthermore, the Competition Act is not a sufficient safeguard against the harms of vertical integration. In 2012, when RIL bought majority shares in Network 18, the CCI had the chance to consider the harms of vertical integration. Infotel (a precursor of Jio), which was set to enter the broadband services using 4G technologies, had entered into a non-exclusive preferential access agreement for Network 18’s digital content. The commission felt that this did not cause any “appreciable adverse effect on competition.” This was centered around the “the intrinsic open access characteristic of an ISP and the fact that players on other platforms will not lag behind”.[20]Which meant that there exist, “other content providers, either existing or potential, who in time will be able to provide content through other ISPs”.[21] Here, CCI failed to appreciate the harms that come with reduction in the plurality of content, even if there is no long-term economic harm befitting the appreciable adverse effect standard. For instance, according to the order, it would not be a competition law issue as long as consumers are getting some content through some distributor, without necessarily ensuring all consumers should get access to all information regardless of the distributor. The same issue may arise even under Sec. 3(4),[22] which prohibits companies from entering into an “exclusive distribution agreement” only provided that it results in an AAEC. While this standard may work in other markets, given the inherent public interest aspect of accessing media, including films, news and other such content, competition law may not be adequately equipped to address these issues. [23]

Thus there is a clear need for regulation to control the consolidation of Telecom and Broadcasting of media. Can TRAI deal with the competition law matters that arise in such convergence? Or should such matters be dealt with entirely under the domain of CCI?  Or should TRAI and CCI address them together? Primarily, we need to recognize that the harms arising out of the consolidation of Telecom and Media are akin to those arising out of vertical integration between traditional distributors and content providers and act accordingly. We must keep in mind that multiplicity of governing agencies may impact the efficiency of dealing with the matter and reaching an informed decision. Instead a better solution may be to allow sector specific regulators like TRAI to adopt regulations that specifically empowers it to regulate competition law matters arising out of the convergence of telecommunication and media.

Having a sector specific regulator like TRAI to govern the competition law matters in its respective sector is crucial to ensure welfare of consumers. For instance, Jio priced its services at low rates distorting the consumer base of other competitors. From the perspective of CCI, Jio will not have the requisite market dominance to impose liability. However, when the same matter is before TRAI, the low pricing can be considered as unfair and therefore will be anti-competitive in nature.[24] Further, TRAI could simultaneously deal with public interest aspects issues as well as consult CCI on relevant competition aspects for expert opinion.

However, this would require regulations governing the competition aspects of the telecom industry, with guidelines for assessment and decision-making in the case of anti-competitive practices that go beyond the overarching Competition Act, 2002. Such regulations would have to take into account sector specific standards for harms arising out of vertical integration, that not only includes long-term economic harm but also ensures plurality and access to content based on public interest standards. This would mean a lower tolerance for any negative effect on prices and choices than is currently accepted under competition law. This would also mean removing the requirement of market dominance to penalize anti-competitive behaviour. ​ Armed with such sector specific regulations, TRAI will be able to use its specialized knowledge about the sector to provide a more effective remedy to any competition law issues that arise in the telecom sector. This will also ensure that there is certainty and clarity in the law that will govern the players in the market leading to better choices, efficiency and consumer welfare based on standards and considerations that are suited to this sector.

* Goyal is a V Year B.A. LL.B (Hons.) student and Menon is a IV Year B.A. LL.B (Hons.) student at National Law School of India University, Bangalore. [1] R. Molla and P. Kafka, ‘Here’s Who Owns Everything in Big Media Today’ (Recode, 26 April 2018)<https://www.recode.net/2018/1/23/16905844/media-landscape-verizon-amazon-comcast-disney-fox-relationships-chart> accessed 21 March 2019.

[2] Lee and Kang, ‘U.S. Loses Appeal Seeking to Block AT&T-Time Warner Merger’ The New York Times (26 February 2019) < https://www.nytimes.com/2019/02/26/business/media/att-time-warner-appeal.html> accessed 3 May 2019; N. Filds, ‘Big Bet by Telecom Companies on Exclusive Content Comes at a Cost’ Financial Times (10 January 2018) <https://www.ft.com/content/fc17626e-cee5-11e7-9dbb-291a884dd8c6> accessed 21 March 2019.

[3] P.G. Thakurta, ‘What Future for the Media in India’ (2014) 49(24) EPW<https://www.epw.in/journal/2014/24/web-exclusives/what-future-media-india.html> accessed 21 March 2019.

[4] M. Philipose, ‘Reliance Jio Continues to Get an Outsized Share of Data’ Live Mint (27 March 2018) <https://www.livemint.com/Money/0QreVOi4taSmXUKaEuhQMK/Reliance-Jio-continues-to-get-an-outsized-share-of-data-traf.html> accessed 21 March 2019; ‘Reliance Jio beats Airtel to become India's 2nd largest telecom company’ Business Today (25 April 2019) < https://www.businesstoday.in/current/corporate/reliance-jio-airtel-india-2nd-largest-telecom-company/story/340292.html> accessed 3 May 2019.

[5]Omidyar Network, Innovating for the Next Half Billion (2017)<http://omidyar.com/sites/default/files/file_archive/Next%20Half%20Billion/Innovating%20for%20Next%20Half%20Billion.pdf> accessed 21 March 2019.

[6] A. Bhattacharya, ‘Internet Use in India Proves Desktops are Only for Westerners’ (Quartz, 29 March 2017)<https://qz.com/945127/internet-use-in-india-proves-desktops-are-only-for-westerners/> accessed 21 March 2019.

[7] EMC Corporation, ‘Content Services in Telecommunications’ (2005) <https://www.emc.com/collateral/.../h2120-content-services-telecommunications.pdf> accessed 22 March 2019.

[8] RIL Group/Network 18 Media and Investments Ltd., C-2012/03/47 (Competition Commission of India).

[9] Massimo Motta, Competition Policy: Theory and Practice (2003) 433.

[10] United States of America v AT&T Inc. &Ors., Case 1:17-cv-02511 (USDC District of Columbia).

[11] United States of America v AT&T Inc. &Ors., Case 1:17-cv-02511 (USDC District of Columbia).

[12]Philipose(n 4).

[13] ‘Reliance Jio amasses over 51% market share in broadband services’ Business Standard (25 October 2018) <https://www.business-standard.com/article/companies/reliance-jio-amasses-over-51-market-share-in-broadband-services-118102500007_1.html> accessed 3 May 2019.

[14] Prohibition of Discriminatory Tariffs for Data Services Regulations, 2016.

[15]Jio users are already encouraged to download applications like Jio Newspaper (Your digital newsstand).

[16] This analysis will be further complicated by issues of platform neutrality.

[17] Telecom Regulatory Authority of India, ‘Consultation Paper on Issues Relating to Media Ownership’ (2013) <http://www.trai.gov.in/consultation-paper-issues-relating-media-ownership> accessed 22 March 2019.

[18] Administrative Staff College of India, ‘Study on Cross Media Ownership in India’ (2009) <http://cablequest.org/pdfs/i_b/ASCI%20Cross%20Media%20ownership%20in%20India%202009.pdf> accessed 22 March 2019.

[19] TRAI (n 17); This was subject to review in two years.

[20]RIL Group/Network 18 Media and Investments Ltd., C-2012/03/47 (Competition Commission of India).

[21]RIL Group/Network 18 Media and Investments Ltd., C-2012/03/47 (Competition Commission of India).

[22]The Competition Act 2002, s 3(4).

[23] S. Kumar, ‘Big Media has become Bigger: Media Diversity and Reliance’s Takeover of Network 18’ (Alternative Law Forum) <http://altlawforum.org/publications/big-media-has-become-bigger-media-diversity-and-reliances-takeover-of-network-18/> accessed 22 March 2019.

[24]Vikas Kathuria, ‘TRAI and CCI: no turf wars, please’ Live Mint (3 August 2017) <https://www.livemint.com/Opinion/S6dpsQJ8m86O6Acsrl6DRO/Trai-and-CCI-no-turf-wars-please.html> accessed 22 March 2019.