Convergence and OTT
As Internet users, we can make telephone calls, watch TV, share music, offer transportation, and rent properties through our Internet-connected devices. Only a few years ago, such services were handled by different technological systems and industries that were governed by different regulations. However, the omnipresence of the Internet has helped the convergence of technological platforms for the telecommunications, broadcasting, information delivery, transportation, and hospitality sectors.
In the field of traditional telecommunications, the main point of convergence is represented by Voice over Internet Protocol (VoIP) services. The growing popularity of VoIP systems such as Skype and Viber is based on lower prices, the possibility of integrating data and voice communication lines, and the use of advanced PC- and mobile-device-based tools. With YouTube and similar services, the Internet is also converging with traditional multimedia and entertainment services. Such services – which use the Internet as the delivery platform – are known as over-the-top (OTT) services.
In the transportation and hospitality sectors, new Internet businesses have transformed old industries. The Internet has facilitated the creation of platforms focused on the sharing economy through which private parties may provide services similar to traditional businesses such as hotels and taxis. The convergence of technological platforms with these sectors have in turn challenged traditional regulatory structures. Competitors from these traditional markets often challenge governments and courts to apply the same tax, safety, and labour regulations that they are bound to these new online platforms.
Moreover, with ongoing development of the Internet of Things (IoT) and artificial intelligence (AI), the integration of new technologies into existing products, services, and business processes is also increasingly seen as a matter of convergence.
The economic implications of convergence
At the economic level, convergence has started to reshape traditional markets by placing companies that previously operated in separate domains into direct competition. As new business models are emerging, existing ones are threatened. For instance, over the past twenty years, traditional telecom operators have argued that OTT services such as VoIP jeopardise the existence of their businesses. Mobile telephony service providers in particular, have seen declines in the usage of traditional voice services, as customers are currently more inclined to use VoIP services. Moreover, hotels are now competing with private home owners who use house sharing platforms and the taxi industry has been widely affected by online ride-hailing platforms.
Faced with such challenges, companies have taken a variety of approaches. Some insist that the competition brought by OTT services is unfair, as OTT providers are in most cases not subject to the same complex regulatory provisions. Others have taken proactive measures by, for example, changing their business models to introduce new services to compensate for those that are less used. Another frequent strategy is mergers and acquisitions – when smaller, new-to-the-market OTT providers merge with or are acquired by larger companies. In a more recent approach, OTT and telecom providers have started to establish partnerships aimed to realise advantages for both sides. For telecom providers, partnerships with OTT providers bring them a competitive advantage, as well as added value for end-users. For OTT providers, on the other hand, make their services easier to find and access, due to partnerships with carriers.
Convergence has in many cases led to fears of the ‘Uber syndrome’ among business leaders: The scenario in which a competitor with a completely different business model enters the industry and flattens competition. Such was the case when Uber entered the taxi market through technological innovation. As a consequence, traditional taxi companies and drivers, whose businesses were threatened, filed lawsuits in courts worldwide against the new unregulated entrant in the market. At the EU level, for example, the Court of Justice of the European Union was referred to determine whether Uber and Airbnb shall be considered, for regulatory purposes, as a transportation service provider and a real estate agent or as digital intermediary companies that only provide information society services. Courts were also asked whether Uber drivers are independent contractors or Uber employees.
Regulation in a converging environment
The legal system was the slowest body to adjust to the changes caused by technological and economic convergence. Each industry – telecommunications, broadcasting, information delivery, real estate, and transportation – has its own special regulatory framework. This convergence opens up several governance and regulatory questions:
- What is going to happen to existing national and international regimes in fields such as telephony and broadcasting?
- Is there a need for new regulatory regimes that focus mainly on converged services? Or should they be subject to the same regulatory frameworks as, for example, traditional electronic communications services?
- When it comes to competition and consumer protection, what rules, if any, should be imposed on providers of converged services?
- Should the regulation of convergence be carried out by public authorities (states and international organisations) or by self-regulation?
At the international level, governance mechanisms are mainly used for the exchange of the best practices and experiences. The International Telecommunication Union’s Development Sector (ITU-D) has a study group on the converging environment. The Council of Europe has a Steering Committee on Media and Information Society, covering the aspect of convergence related to the interplay between traditional and new digital media.
At the national level, countries are addressing convergence concerning telecommunications in various ways. Some countries, such as several EU member states, India, and Kenya have chosen flexible approaches towards regulating convergence by simply addressing the issue from the perspective of net neutrality: Users should be allowed to choose any type of applications or services provided over IP networks. Other countries have created new legal and regulatory frameworks for converged services. In Korea, for example, IPTV services are subject to legal provisions in terms of licensing requirements and service obligations. The EU has enacted a new Electronic Communications Code with the introduction of legal obligations for providers of OTT services. In some countries, convergence is addressed through self-regulation. And there are yet other countries – such as Belize, the United Arab Emirates, and Morocco – which have chosen, at one point or another, to explicitly ban OTT services through regulation, or to ask that access to such services is blocked by telecom providers.