Net neutrality is the fundamental bedrock for innovation, provisioning of citizen services and out-of-box business models
Popular e-commerce portal Flipkart has been advertising with the Times group. Recently, the e-retailer was contacted by Airtel, which offered to do the promotional job at two-third of the price. The plan was simple: the e-retailer had to register with the telco platform called Airtel Zero. Having a strong customer base of 32 crore, Airtel would provide all its customers toll-free access to Flipkart. Since customers didn’t have to pay for the internet to access the app, this would have given the e-retailer advantage over other competitors.
When Airtel launched this plan on April 6, it created a huge public outcry against the telco. An over-the-top player (aka OTT, the application service provider like Flipkart, WhatsApp, Viber and others) has to pay a handsome amount to a telco to offer toll-free access (which means the data charge is paid by the OTT and not the customer) to its services. This practice is also called zero rating – a new income generating avenue conjured up by the telcos.
While on the one hand zero rating gives OTTs access to the large customer base of telcos and adds to the revenues of the telecom companies, on the other it puts all other OTTs, especially start-ups, at disadvantage. “This practice distorts the level playing field, creates an uncompetitive environment, and discourages innovation,” said Pranesh Prakash of the Centre for Internet and Society (CIS).
When the news of the deal between Flipkart and Airtel broke, the e-tailer’s CEO initially defended the Zero platform. Succumbing to the popular opinion, however, the e-tailer pulled out of Airtel Zero on April 14. This whole episode brought the Times group – which also funds mobile and internet start-ups – and Airtel at loggerheads.
This is what telecom regulatory authority of India chairman Rahul Khullar referred to while speaking to the press on the same day. “There are passionate voices on both sides of the debate. And if that was not enough, there’s a corporate war going on between a media house and a telecom operator which is confounding already difficult matters,” Khullar told The Indian Express.
The TRAI itself has been criticised for being sympathetic to telecom operators — something which is quite apparent in the consultation paper for regulating OTTs brought out by the regulator on March 27. The paper talks about licensing the OTTs and exploring if OTTs needs to compensate for using telecom operators’ infrastructure.
Within weeks of the introduction of the consultation paper, over 8,00,000 emails have been sent to the regulator. The last date for giving comments was April 24 and May 8 for counter comments. So far the government has maintained a pro-net neutrality stand. The communication and IT ministry has appointed a six-member panel on the issue. It will submit its report in May. Minister Ravi Shankar Prasad said the government’s take on this issue will be independent of TRAI. “We are doing so (coming out with a report) independent of TRAI. This is happening for the first time because of the gravity of the matter,” he said.
An online petition moved by Change.org to not allow differential pricing of services on the internet has been signed by 2,80,000 people. The stand-up comedy group AIB posted on YouTube a video telling users why net neutrality matters. The video has been seen over two million times. A few Bollywood personalities, including Shahrukh Khan and Farhan Akhtar, have tweeted in favour of net neutrality. The Congress and Aam Aadmi Party have also spoken up for it. Congress vice president Rahul Gandhi also raised the matter in parliament, accusing the government of selling the internet to corporates. While the issue is being debated ferociously from both sides, the situation may not be as black and white as it seems.
It is undisputable that the internet and dependent businesses both have grown and flourished only because they have never been controlled by any government or a corporate house. So far information packets have flown virtually freely through the internet pipe, without discrimination. Differential treatment of packets would create an uncompetitive environment and will kill innovation. This would eliminate the space for a new Google or a new Facebook.
The threat of neutrality violations is real, though telecom operators have their side of the story.
It is interesting to note that in the absence of a clear definition of net neutrality, every stakeholder – from both sides, be it telcos or OTTs like Facebook and Google – has voiced its support for net neutrality. Let us start with arguments in favour of network neutrality.
Being neutral
The first and foremost fear of the group advocating net neutrality is that if telecom operators have their way, they will dictate what is the best for the consumer, who will have no say. A worst case scenario would be consumers having quick access to a set of online services, while other services might take a little longer to open up. In the absence of a clear neutrality policy, certain websites or online services could be slowed for commercial and political reasons.
Second, there is a fear that consumers may have to pay more to access OTTs like Skype, Viber and WhatsApp. According to telcos, these communications apps are hurting their revenue from traditional voice and SMS services. Airtel actually started charging for Skype and Viber, but it soon backtracked, following public criticism.
Third, the telecom operators have complained that video streaming sites such as YouTube and video channels consume substantial bandwidth, choking the network. According to telecom operators, since content is forcing them to expand network and expanding network is an expensive business, they should be compensated. While telcos may have a point that video content and apps are putting pressure on their networks, such usage is also increasing data revenue of the operators.
The data revenue (earnings from internet offerings) of telcos has steadily increased over the past few years, said Prabir Purkayastha, vice president, Free Software Movement. Airtel’s data revenue, according to Medianama.com, has almost doubled in 2014 vis-a-vis to 2013.
Responding to telcos demand for charging content providers to expand network, Vijay Shekhar Sharma, founder of One97 Communications, which owns mobile payment service Paytm, said that the content providers or the OTTs already pay telcos for data centre and bandwidth. This is addition to charges being paid by the consumers. “I am quite surprised when telcos tell OTTs, ‘you have built business on us’,” Sharma said.
Fourth, those speaking in favour of net neutrality see zero rating as a clear violation, even if it is about Facebook’s internet.org. Under this initiative the social media giant join hands with a telco - in India it has partnered with Reliance Communications - to provide free access to certain websites, including Facebook. Well, something is better than nothing. That is what Mark Zuckergberg had to say when a few websites including those of NDTV, Times group and Cleartrip started pulling out of internet.org. The initiative, according to Facebook, aims to connect the poor.
Critics however differ. Purkayastha said that Facebook’s per user per year revenue is $4, as stated in its initial public offering. As the number of users increases so will the revenue. It is not designed to help the poor, Purkayastha said, rather it is designed to perpetuate poverty, giving access to a walled, fragmented internet.
The other side
While fears related to slow and quick access to certain apps or online services are genuine, the distortion of level playing field due to zero rating is something which needs to be looked at from the competition viewpoint.
The group of telecom operators, the other side, has been of the view that net neutrality can’t be absolute, and those who are advocating it don’t have an economics sense. It is more to do with consumer politics than anything else. In order to make internet accessible to more users and uphold quality of service, according to telcos, network operators must be allowed to manage their network.
“You can’t justify strict net neutrality. The need is for defining circumstances in which it can be done. In cases of peak traffic, when you (operator) decide that network capacity is limited and you can’t accommodate further,” said Mahesh Uppal, a senior consultant on telecom regulation.
The conditions on which it has to be managed or controlled should be decided by the regulator, he said. While Uppal is against preferential treatment, he is of the view that operators should be allowed to ensure network efficiency and deal with capacity constraint. He said that network management shouldn’t happen on the basis of commercial interest, and it shouldn’t be anti-competitive.
One of the biggest pain points of the sector has been that the government has always seen telecom operators as cash cows. There is enormous regulatory burden on telcos. Everything put together, telcos pay 28 percent of their revenue to the government. This includes licence fee of 11 percent and five percent that goes to universal service obligation fund – this practice of extorting licence fee and rural connectivity fund, according to Uppal, is typical to India and doesn’t have any precedence in Europe or in the US.
It runs contrary to global best practices. If the government reduces the burden, Uppal said, no telecom operator will have an excuse of not being able to invest in network and seek other sources of revenue, which might tamper net neutrality.
Network congestion is a looming problem for telcos and as well as consumers. It will become more real as more customers join the network, even as the telcos cry about the lack of enough spectrum – a major chunk of it is being hoarded by the defence ministry.
The idea of providing fast lanes to some apps or online services and slow lanes for others will not just be detrimental to consumers’ interest but will also kill innovation and entrepreneurial skill. The government should have a clear definition of net neutrality, prohibiting discriminatory treatment of data packets, distortion of level playing field. The government must also mandate telecom operators to be transparent in their network management practices. The government can also moot re-assessing the regulatory burden on telcos. If at all the government chooses to issue licences to OTTs, it should keep it to the bare minimum, so as to provide congenial environment for innovation and entrepreneurism.
pratap@governancenow.com
