Response to TRAI Consultation Paper on Regulatory Framework for Promoting Data Economy Through Establishment of Data Centres, Content Delivery Networks, and Interconnect Exchanges in India

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Response to TRAI Consultation Paper on Regulatory Framework for Promoting Data Economy Through Establishment of Data Centres, Content Delivery Networks, and Interconnect Exchanges in India

Deepak Arora

@deepakarora

February 25, 2022

Public Policy

304

We earlier in the month submitted our feedback on TRAI consultation paper on the "Regulatory framework for promoting data through establishment of data Centres, content delivery networks, and interconnect exchanges in India". While the paper covered a wide range of issues related to the growth and development of the digital infrastructure, our submission was made mainly on aspects and matters related to the telecommunications that falls within the scope of TRAI and DoT as mentioned below.

Regulatory treatment of CDNs

At present, CDNs represent a constantly evolving, competitive and growing market in India. The competitiveness of this sector is evident both from the diversity of established players (such as Akamai, which listed in 1999) and new players (such as Fastly, which listed in 2019; alongside other content-first companies such as Netflix and Google) active in the market – indicating the lack of significant entry barriers, and the constant decline in prices offered to content providers.

In fact, reports indicate that significant price drops occurred simultaneously with the onset of the Covid-19 pandemic, represent a CAGR price erosion of almost 10% for CDN services in India – with additional CDN capacities likely to fuel further decline in transit and CDN services.

Adding credence to efficiency of CDN, peering and transit arrangements, the OECD has previously noted that “the Internet has developed an efficient market for connectivity based on voluntary contractual agreements. Operating in a highly competitive environment, largely without regulation or central organisation, the Internet model of traffic exchange has produced low prices, promoted efficiency and innovation, and attracted the investment necessary to keep pace with demand.”

Moreover, as noted in the consultation paper, India’s CDN market will witness a growth of over 700 percent during the period 2018 – 2027 (from USD 435.2 million in the year 2018 to USD 2846.8 million by 2027). Therefore, in the absence of clearly identified market failures, we recommended that TRAI should proceed cautiously in its treatment of the CDN market, since unwarranted regulations could raise entry barriers, and risk stunting the growth of the market.

Regulatory Treatment of IXPs

Similar to CDNs, IXPs provide an essential component of the infrastructure underlying the digital economy. IXPs that successfully attract a sufficient number of members create network effects that strongly decrease the cost of interconnection and increase its value. In a 2012 study on the impact of IXPs in Kenya and Nigeria for the Internet Society, consultancy Analysys Mason noted that “Overall, the IXPs have had the direct effect of lowering the operating costs for local ISPs, while increasing the traffic, and where relevant corresponding revenues, of ISPs, with further benefits for those sectors that have incorporated the IXP in their delivery of services”

Likewise, similar to the market for CDNs, the market for IXPs is characterised by negligible barriers to entry. Capital investments and technology required for establishing an IXP business are low, since in their simplest form, IXPs provide a simple layer-2 network switch. Against this backdrop, we submitted that several queries raised for consultation in the CP, appear to be misguided for the following reasons:

IXPs have flourished in the absence of regulation, due to the nature of their business models, and the tremendous efficiencies brought forth by their services. As such IXPs do not undertake the provision of any licensed telecommunications service and should therefore not be regulated as such. Moreover, as noted in the CP, no jurisdiction till date, has imposed regulatory/licensing requirements upon IXPs, and TRAI should avoid setting an inappropriate precedent in this regard.

Mandating networks to join IXPs would be poor policy that will result in market distortions and inefficiencies. It would amount to a regulatory intervention in the interconnection market, which has thrived so well without any regulation.

Dark Fibre connectivity for Captive Purpose

Currently, the terms and conditions contained in the revised Guidelines for Infrastructure Service Providers (Category – I) (IP-1 Guidelines), prohibit entities holding an IP-1 registration from providing dark fibre to unlicensed entities. Additionally, unlicensed entities, such as DCs, are prohibited from engaging in the deployment and operation of dark fibre networks, and there is lack of clarity amongst UL and UL VNO licensees holding relevant authorisations for access services or national long distance (NLD) services, on whether they can offer dark fibre to connect non-licensed customers. Resultantly, DC operators are unable to buy or lease dark fibre in order to construct, operate and efficiently manage their own networks – configured and optimised to suit customer requirements – and are entirely dependent on licensed TSPs for connectivity requirements.

This is problematic because traditional networks operated by TSPs are principally designed for voice (Mobility) or public data services, such as IP broadband services, using best-effort redundancy principles. They are not suitable for cloud services, which require very high availability, bandwidth, and low latency for extremely high amounts of data; and achieving these outcomes using the services of licensed TSPs is especially difficult given India’s vast geography, increasing demand for low-latency and high-bandwidth DC services, and relatively limited existing technology infrastructure and broadband deployment. We therefore suggested that TRAI should consider:

Allowing DC companies to lay their own dark fiber between two or more DCs of the same company, in order to connect customers equipment located within such DCs.

Providing a clarification that UL and UL VNO licensees holding relevant access service and NLD service authorizations, are allowed to lay fiber and provide dark fiber connectivity to DCs for the purposes of connecting customer equipment located in two or more DCs of the same company.

Our detailed submission can be accessed from here.

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Deepak Arora