Fair Share or Foul Play? Examining the Feasibility of Cap Contributions in India’s Telecom Sector

-Vedik Bairwa and Awaneesh Kumar*

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A. Introduction

The Indian Telecom industry has been facing prolonged financial distress for an elongated period of time, with various hurdles in their path. These include regulatory dues, spectrum acquisition, cost price wars, intense market competition and high costs of network expansion. The Supreme Court’s decision (SC), by expanding the interpretation of Adjusted Gross Revenue (AGR), thereby imposing an overhead burden of more than one lakh crore as license fees on telecom companies, along with penalties, as well as interest on these penalties, has already constrained telecom operators’ financial flexibility, which has significantly confined the scope for further financial manoeuvring.  Further, Telecom operators also argue that their revenues have not kept pace with the increasing data consumption driven by large content providers such as Netflix, YouTube and Meta.

As a result, Telecoms’ are increasingly demanding for a “fair share” model, or a mechanism, under which large over the top (‘OTT’) platforms would be required to contribute financially to the development and maintenance of network infrastructure. This Network Infrastructure crucially benefit Content and Application Providers (‘CAPs’). They drive these profits without having any responsibility for maintenance or any support in the expansion of these telecommunication networks which they rely upon.   With the introduction of 5G, and further push towards 6G, the need for wider fibre optic connectivity increases their financial burden.

However, this strategy has faced several faced hurdles from CAPs and has attracted scepticism since it may compromise on net neutrality, limit competition, and force expenses onto consumers. Given that CAPs are already funding content distribution systems, edge servers, and marine cables which actively reduce the burden on telecom networks, it casts a doubt of the necessity of imposing additional legal obligations. This in turn, reduces the operational cost for telecom operators.

India’s 2018 net neutrality rules, banned throttling and price discrimination, with clear establishment of legal barriers against service-based discrimination. Meanwhile, as telecoms face exorbitant AGR dues and hefty 5G auction bills, leading them to urge CAPs to share network costs. Isolating this aspect provides a divergence between, statutory objectives and economic pressures. The key Issue being, whether forcing CAPs into a “fair share” scheme will shore up network investment or undermine the very principle of equal access.

These aspects combined create a core question: Is it feasible for the Indian telecom industry to implement a fair share model?

This piece argues that while the fair share model could provide transient economic succour to telecom companies, its adoption in India has critical legal and economic implications. Instead of resorting to such a model, we suggest alternative solutions, such as cooperative infrastructure investment, digital taxation, and dynamic pricing. These measures offer a more promising path to the revival of the telecom industry without compromising net neutrality.

The discussion is carried out in four distinct sections. The first section presents the fair share model because it sheds light on the economic plight of Indian telecom operators. The second section presents a critical analysis of the model from the lens of net neutrality and consumer rights. The third section explains how other jurisdictions, such as the European Union and South Korea, have dealt with similar proposals. Finally, the last section addresses more balanced and lawful solutions in the Indian context

B. Understanding the Fair Share Model and Its Economic Necessity for Indian Telecom Operators

The financial health of India’s Telecom companies has been deteriorating over the years due to high regulatory costs, intense competition, and the burden of AGR dues. They argue that even after the exponential rise in data consumption, this consumption hasn’t been translated into a proportionate revenue growth. Despite handling vast amount of traffic, telecoms remain reliant on consumer subscription fees, while on the other hand, the content providers generate sustainable revenue from advertising and paid services While the telecom market has grown due to increased consumption, the revenue share per operator has diminished, largely attributable to intensified price-based competition. —the entry of Reliance Jio triggered a price war that slashed average revenue per user (ARPU) for all telecom operator, while the market somewhat came to a stable stop after the Vodafone-Idea merger with adjusted price strategies. However, Telecoms continue to struggle with capital expenditure requirements for 5G deployment, maintenance of infrastructure  and fibre-optic expansion, leading telecoms to further insist that major CAPs must contribute. Thus, the core argument for the implementation of the fair share model is that telecoms bear the cost of expanding network infrastructure while CAPs generate immense traffic and monetize digital services without directly contributing to these costs.  

However, this argument is too met with strong opposition—digital rights advocates argue that CAPs already contribute via investing in content delivery networks (CNDs), caching services and submarine cables which in addition reduces burden over these telecom networks. Furthermore, mandating CAP to make contributions risks institutionalizing a pay for priority framework, that directly violates India’s common Carrier doctrine under the Telegraph Act[1] and TRAI’s 2016 net neutrality regulations. It creates a situation of granting preferential for cash rich CAPs, which would effectively raise the cost of digital entry, leading to stifle start-up innovation and erect financial barriers to entry. Net neutrality requires that all internet traffic is treated impartially, ensuring that no content, application, or service is favoured or prioritized based on payment or financial capacity. Against this backdrop, new proposals from telecom operators reveal a shift in approach to managing internet infrastructure costs.

The Cellular Operators Association of India (COAI), representing major telecom providers, advocates for Model 5, a framework that selectively shifts infrastructure cost onto limited number of high traffic CAPs such as Netflix and Disney+, while overlooking the broader ecosystem’s usage.

However, the economic justification for this model is not as straightforward as telecoms claim. Network infrastructure costs are essentially fixed in nature and do not scale directly with traffic volume, as noted by CISCO in their assessment and the Body of European Regulators for Electronic Communications (BEREC) in similar settings. These expenses are primarily attributable to long-term infrastructure investments and operational uphold, not dynamic traffic variability. Through data rates and broadband subscriptions, internet service providers (ISPs) and telecom operators also already offset these expenses from end consumers. Accordingly ,the Proposal to charge extra costs to CAPs begs questions about double charging, that is where consumers and content providers would ultimately pay for the same network use. This means that both consumers and content providers would end up paying for the same network usage, it goes against the aspect that only the party causing the cost should pay for it, and it could hurt innovation, especially for smaller or newer content providers who cannot afford these extra charges.

C. Evaluating the Fair Share Model: A Threat to Internet Accessibility?

In India, net neutrality constitutes as one of the foundational principles of internet governance, asserting that all data on the internet must be treated equally without any discrimination based on content. The TRAI upheld this standard in 2016, with its decision to ban differential pricing models and rejected Facebook’s Free basics proposal to ensure an open and equitable internet of all users.

Should India adopt a fair share approach, it could lead to an imbalance whereby CAPs paying Telecoms get preferential treatment, therefore compromising these long-standing legislative protections. This concern is grounded in real-world examples, as similar debates have unfolded in other jurisdictions. For example, the EU regulator, BEREC, have explicitly voiced opposition to the fair share model, warning that it could distort competition and potentially breach net neutrality principles.  This is a textbook threat to net neutrality. The EU has already seen similar red flags, with BEREC warning that forcing CAPs to pay telcos could skew the market and compromise fundamental digital rights. The Indian Telecom Sector might have to face such consequences.

Firstly, one of the most significant consequences of a fair sharing model is the possibility for internet fragmentation where telecoms begin prioritizing the traffic of CAPs that contribute financially, and leaving out smaller content providers, startups, and new market entrants. This would not only be a  discriminatory treatment, but would also make it harder for them to compete. Secondly, the imposition of additional fees on CAPs would likely be transferred to the end users via elevated subscriptions, which would lead to constricting consumer choice and which not only shrinks consumer choice but also amplifies overall market disruption by entrenching the power of dominant players.

D. Global Precedents and India’s Legal Framework: Evaluating the Risks and Feasibility of a Fair Share Model in Telecom Regulation

Global examples too share critical perspectives into the feasibility of implementing a fair share mechanism in India. South Korea stands out as a case study in terms of a cautionary example, and how the telecom operators successfully imposed network usage fees on CAPs. In 2021, SK Broadband sued Netflix, arguing that the platform’s increased streaming demand, especially due to the increase in appeal of squid games (a popular show on Netflix) has led to higher network costs. The court ruled in favour of SK Broadband, prompting Netflix to enter negotiations for payment terms. Netflix responded by increasing its subscription fees in South Korea, while some CAPs considered restricting content availability to avoid additional charges, demonstrating that the financial burden ultimately falls on consumers and how that such arrangements allow telecom operators to act as gatekeepers, fundamentally altering the nature of internet accessibility. The South Korean model thus raises apprehensions that a similar implementation in India could disrupt digital affordability and content diversity.

The European Union on the other hand, rejected a similar proposal after extensive consultation with industry stakeholders. Major European telecom companies including Deutsche Telekom, Telefónica, and Orange pushed for a CAP-based payment plan as in 2022, arguing that only six companies accounted for over half of all network traffic and that their contributions were essential for sustaining infrastructure investments. However, the European commission, after conducting extensive consultations with over 2500 stakeholders, ultimately rejected the proposal in 2023. The rejection was based on various factors, including fears of  compromised net neutrality, lack of data showing CAP payments will result in higher broadband investments, hurting consumers and the possibility of generating disputes with current EU digital market rules.

Consumer interests and regulatory scrutiny overtook telecommunication calls for CAP contributions in Europe even in areas where telecom firms had substantial influence. Therefore, it is pertinent for India to provide an exact and objective criterion for CAP contributions so as to prevent regulatory arbitrage and ensure transparency. Rather than imposing direct tolls, a possible solution would may lie in a cooperative strategy by both Telecoms and CAPs to co-invest in infrastructure, which may balance expenses and ensure net neutrality. A clear example comes from Portugal. In 2017, Vodafone and NOS, a telecom entity and not a CAP, struck a voluntary, market-driven deal. They agreed to jointly invest in dark fibre infrastructure. Both contributed equally and gained shared access to the network. Despite this, each kept full control over their retail operations and customer management. India should include stakeholders based on the EU’s consultation method to assess if CAP-based fees actually contribute to enhance the growth of broadband. Government-led digital infrastructure subsidies or incentivised public-private partnerships can also be used to provide a sustainable alternative guaranteeing fair internet access without so distorting competition or innovation.

In light of the severe financial stress faced by telecom operators, a fair share model is being proposed as a potential solution. Whether such a model is realistically implementable in India remains a matter of debate.

It is to be remembered that the environment for telecoms in India has not been very favourable lately. The combination of strict pricing competition, expensive spectrum prices, and regulatory sanctions has all caused the industry to be spinning under a massive debt. The SC’s order on AGR to tax telecoms in Union of India v. Association of Unified Telecom Service Providers of India ordering telecoms to pay about ₹1.6 lakh crore has only exacerbated their state. The Court emphasized that spectrum licenses are contractual use rights rather than proprietary assets, hence telecoms cannot treat them as commercial property during insolvency proceedings. The data suggests that India has the lowest  ARPU rates in the world. This trend became more noticeable in 2016 when Reliance Jio entered the arena. The latter pricing wars have drastically lowered telecom profitability, hence demand for CAP contributions from a company perspective becomes more critical. Moreover, the 5G spectrum auction with record-high bids has caused an even more heavy debt load on telecom companies. The fair share model seems to provide telecoms with a possible income source given these financial constraints but its application has to be balanced against customer effect and legal standards.

The current TRAI legislative framework lacks clauses allowing direct CAP payments to network infrastructure. Adopting such a model would mean a thorough review of India's telecom rules, which would generate questions over legal uncertainty and the possibility of regulatory capture by powerful companies in the sector. Should telecom companies be let to levy CAPs, consumers could suffer greatly. Content providers might pass on the extra expenses through more membership prices or by limiting access to particular Indian services. Smaller and developing content platforms may find it difficult to compete, therefore lowering the variety in the digital ecosystem. Should telecom firms be able to negotiate payments with CAPs, there is also a chance that they will give some services first priority over others, therefore compromising the ideas of an open internet. Legally, the viability of a fair share model in India still seems questionable. TRAI’s 2018 net neutrality policy clearly forbids discriminating pricing and preferential treatment of some kinds of online traffic. Unless major legislative changes were done, introducing a CAP-based payment system would most certainly go against these values. Furthermore, decided by the SC in past decisions is spectrum's public nature, allocated via government licencing.

E. Are There Viable Alternatives to the Fair Share Model?

Given the legal and regulatory barriers, India must  explore alternative mechanisms that balance telecom sector sustainability with net neutrality and consumer rights.

One option is to introduce targeted taxation on digital advertising revenues or Digital Services Tax (DST), similar to models adopted in France. While targeted taxation has its own limitations and benefits, it cannot be a direct substitute for revenue-sharing model as  taxation and inter-entity payments serve different legal and fiscal functions  Taxation, in the form of instruments such as DST, is sovereign, statutory, and used to raise overall public expenditure, the proceeds having been channelled through public treasuries. Inter-entity payments, on the other hand, are subject to private law and are the outcome of bargained-for commercial transactions among entities. Payments of this kind move directly between private entities and are to be intended for particular operational or service objectives. Legal and fiscal considerations, therefore, necessitate taxation and revenue-sharing not being synonymous instruments.

Under this arrangement, big technology companies would have to pay a tax on their Indian sales, with the money raised going toward the construction of broadband. This approach would guarantee that contributions towards network infrastructure  are based on real earnings rather than network consumption, therefore lowering the danger of discriminatory pricing unlike a CAP-based charge

Another viable alternative could be collaborative investment in infrastructure wherein telecoms and CAPs both are sharing network expansion expenses. Since both the stakeholders will be distributing the costs of fibre-optic installations and 5G rollout, it would also not be a violation of net neutrality  . Government-led projects like growing BharatNet could be rather important in helping telecom firms to have less financial load. This aspect dodges the legal challenge of mandatory revenue sharing because it is built on voluntary, commercial agreements between CAPs and telecom operators. In addition, this option also supports expansion of network via mutual benefits without the state imposing charges.

A last strategy worth thought is dynamic spectrum pricing. Telecom firms might offer real-time network pricing depending on demand fluctuations instead of charging CAPs. This would generate high revenue for telecoms during high demand hours while enabling them to maximize income creation free from imposing arbitrary fees on content suppliers. Prices would be more during peak congestion, which would encourage content providers to pay more for priority delivery or route non-essential traffic during times when prices are less. This optimizes the use of resources and allows for telecom operators to earn on usage.

Because prices are linked with objective network conditions rather than provider identity or content type, the model is in accordance with net neutrality principles. It is in accordance with economic principles too as it relates revenue to consumer demand rather than compulsory payments per industry. Moreover, this option aligns with market-based economics, by incentivizing revenue generation through consumer demand elasticity, rather than mandating revenue transfers from digital platforms.

F. Conclusion

While the financial problems of the Indian telecom are remain severe, the deployment of a fair share model in India nevertheless presents substantial challenges from both economic and legislative perspectives. Relying upon international precedents, comparable approaches have either been rejected by the regulatory authority or have had unexpected negative impacts. In such a situation, CAP-based payments could thus lead to increased consumer costs, fewer content availability, and possibly net neutrality violations. Emphasizing digital taxation, public infrastructure investment, and inventive spectrum pricing models will help India to become better than depending on a system that would threaten net neutrality. These solutions would allow telecoms to generate extra income without compromising internet availability. Therefore, it is vital for any regulatory decisions to prioritize customer interests, market fairness, and technological innovation top priority instead of giving telecom operators too much influence at the price of a free and open internet.

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[1] The Indian Telegraph Act, No. 13 of 1885, § 4, India Code (1885)

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*The authors are fourth-year B.A. LLB. (Hons.) students at Gujarat National Law University (GNLU), Gandhinagar.