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Summary

In May 2016, a court in Germany ordered WhatsApp to offer its terms and conditions in German, and to ensure German customers could directly contact a representative in the country. Failure to do so could result in a fine of up to €250,000 ($283,087).

This case is a further example of the increased regulatory scrutiny over-the-top (OTT) providers are now subject to; however, regulators should be mindful of the implication of heavy-handed approaches on OTT providers' potential to innovate.

OTT providers must expect more regulation, but regulators should be mindful of their ability to innovate

The recent WhatsApp case could be the first of many similar rulings related to OTT providers, revealing a regulatory trend to make OTT providers more transparent and accountable to end users.

The German court is not only requiring the messaging service to make its terms and conditions available in German, but also that German customers can directly contact a company representative in their own country, as established by the German Telemedia Act (i.e. the main act covering digital services). This may not be surprising because terms and conditions are part of contracts that are commonly subjected to national laws for consumer protection; however, it also has clear implications for compliance costs. Making sure that lengthy terms and conditions and privacy policies are accurately translated in multiple languages, and that someone is available to be contacted directly, will require significant investment in qualified personnel to take care of this aspect. These costs are going to be even higher if regulators in other countries impose similar requirements.

In recent months, several signs of increased regulatory activity around OTT providers have come up in several countries. These relate mainly to data protection, consumer protection, and competition issues. In all the three respects, OTT players should expect stricter rules in the future, or at least more scrutiny, as regulators strive to guarantee that consumers face minimum standards of service and receive adequate support when they have issues. Regulators are also mindful of the fact that OTT communications are increasingly seen as a substitute to traditional communications services and are now competing with traditional telco operators in delivering voice, text, and other communications services to end users.

However, if this trend results in OTT providers facing heavy-handed regulation across the board, it might affect OTTs providers' business models, which rely on low barriers to market entry (including regulatory costs). This could ultimately pose a threat to innovation, as small start-ups might find it harder to enter a market and remain there successfully; they will also be less well placed than established OTT providers (e.g. Google and Facebook), which have been profitable for the last few years and are likely to face less disruption from increased regulatory costs.

Another challenge is posed by the fact that no matter the language in which terms and conditions are offered, end users tend to ignore them and agree by simply ticking a box or pushing a button on the apps they have downloaded on their smartphones and tablets. Making OTT providers offer the terms and conditions in customers' own language might not be significantly beneficial in the absence of an effort to simplify the texts of such agreements. Regulators should make efforts to come up with sensible guidelines, while OTT providers should look to improve this aspect without being prompted by regulators.

Appendix

Further reading

The Regulatory Environment for Platforms, TE0007-001003 (March 2016)

"Regulators are now considering OTTs’ impact on communications markets," TE0007-000964 (December 2015)

Author

Luca Schiavoni, Senior Analyst, Regulation

luca.schiavoni@ovum.com

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