Want a level playing field for telcos and OTTs? Try deregulating

[Commentary] There is currently a sweeping debate in the EU about the need for a level playing field between telecommunications operators and Over-the-Top service providers (OTTs).

OTTs are agents that offer telecommunication services (such as telephony, texting, or TV) over basic data or Internet connectivity. Examples of widely known OTTs are WhatsApp, Skype, and Netflix.

At first sight, there are two basic ways to achieve a level playing field: 1) remove regulation on the telco sector, so that both OTTs and telco operators are unregulated, or 2) regulate OTTs in the same way as telco services. So, what kind of level playing field would most benefit consumers? In short, the lack of a level playing field has two basic effects: Transfer of wealth from regulated to unregulated activities, i.e. from telco operators to OTT providers.

Possible unsustainability of the regulated activities and, in consequence, of the whole value chain. This insight should be considered when deciding how to achieve the level playing field between telco operators and OTTs. Recall there are two basic options: 1) de-regulate the telco market or 2) apply the same regulation to OTTs and telcos. Both options will eliminate the transfer of wealth across the activities in the value chain, but only the first option is able to stop the second effect -- value chain unsustainability. In fact, a level playing field achieved through regulation of OTTs would encourage the transfer of wealth from the Internet value chain to other economic sectors.

In other words, telco operators would still lose value, not to other agents in the Internet sector, but rather to other completely different and possibly unconnected sectors. And OTTs would of course lose value. In sum, it seems that, from an economic theory perspective, the only level playing field compatible with telco, OTTs, and consumer interest in general is the unregulated level playing field.

[Herrera-González is Regulatory Economic Manager at Telefónica]