Do Not Put New Wine into Old Bottles: Does the Telecom Framework Need to Change with OTT?
Do Not Put New Wine into Old BottlesDoes the Telecom Framework Need to Change with OTT?Toshiya Jitsuzumi
OTT markettelecom marketOTT marketFocus of my presentation: OTT telcosvoice text video gameother contentdumb pipetextvoice video gameother contentdumb pipeOTT videoOTT telcos
Challenges aheadI. Concern for competitive neutralitydue to mismatching between the market reality and the regulatory frameworkII. Possibility of a new source of monopolistic leverageIII. Insufficient protection for end users
Addressees of the Telecom Business Act of JapanTelecommunications Carriers (Telcos)Everyone OthersProhibition 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 ✓ ✓
“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.
Lack of competitive neutralityRegistered telcos Notified telcos Not registered or notifiedNTT EastNTT WestNTT docomoKDDISoftbankJ:comFacebook 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. …
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.
LINE is a part of everyday communication.0% 20% 40% 60% 80% 100%Male over 40Male in 30sMale in 20sMale in teensFemale over 40Female in 30sFemale in 20sFemale in teensEvery day 4-5 times a week 1-3 times a weekOnce in biweekly Once per monthSource: LINE Corporation (http://linecorp.com/ads/pdf/DF39EDAE-A64C-11E2-B586-23FE8142F988)
LINE, a substitute for conventional telecom servicesQ LINE is currently expanding its services beyond its original free VoIPand 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 servicesbecause they are annoying to me.I will not use the newservices because they areunnecessary to me.The new services have to beimproved to be more user-friendly.I want more newservices because theyseem attractive to me.I do not have anyparticular complaint.Source: Compiled using data from JustSystems Corporation(http://www.fast-ask.com/report/report-line-20120925.html)
The secret of LINE’s success150M100M80M50M30M10MSource: http://linecorp.com/press/2013/0501551As a communication services, LINE had to surpass the critical mass.After getting authorization from users, LINE automatically imports contact lists from mobile handsets and sends notification messages to other users on that list.
How to start using LINE?All your friend already using LINE will be automatically added to your Friend list.You will automatically added on to the Friend list of the person who knows your phone number.
Conjoint analysis for estimating the value of personal informationSite MergerORPersonal information will be transferred to the merged site, but there are variations in the treatment of the information stored in the closed site.Cash compensation
Economic value of personal informationEstimation of WTAValue of “Amazon.co.jp” brand7,167.1 yen (approx. $72)Value of“Rakuten” brand7,371.2 yen (approx. $74)Proper treatment of personal ID7,281.7 yen (approx. $73)Proper treatment of purchasing record6.881.1 yen (approx. $69)Proper treatment of browsingrecord3.376.4 yen (approx. $34)NLog Likelihood(LL)Restricted LLMcFadden Pseudo R21440 ‐1,528.488 ‐1,582.002 0.0338264Switching costsIn a saturated market, this will give a huge competitive advantage.An indication of end users’ high evaluation of personal information.
Factors that significantly influence monetary valueValue of “Amazon.co.jp” brandValue of“Rakuten” brandPropertreatment of personal IDProper treatment of purchasingrecordProper treatment of browsingrecordAge +** +** ‐***Purchasingfrequency+*** +***Averagepurchased valueN Log Likelihood (LL) Restricted LL McFadden Pseudo R21408 ‐1,458.779 ‐1,546.846 0.0569330Note: *, **, 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
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.
ProposalsI. Concern for competitive neutralityII. Possibility of monopolistic leverageIII. Insufficient protection for end users
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.
Challenge #2: Monopolistic leverage1. A separation between the OTT‐application section and the underlying section and enforce open access regulation between them2. An open access to personal information databaseThese 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 NetworkCore NetworkOTT ApplicationServersDumbpipelayerServicelayerPersonal Information Database
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.
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.
Do Not Put New Wine into Old BottlesDoes the Telecom Framework Need to Change with OTT?Toshiya Jitsuzumijitsuzumi@econ.kyushu‐u.ac.jpi. Competition neutralityii. New monopolistic leverageiii. Customer protection1. Retail market focus2. Open access to OTT servers and information DB3. Consumer educationPopularization of OTT telcosPossibility of regulatory arbitrage