On net neutrality and the national interest

Net neutrality might be an optimum compromise in the absence of full liberalisation of the telecom industry

This is a comment I wrote for the Hindi newspaper Naidunia (Indore). Given that Takshashila might submit an official response to the TRAI public consultation on the subject, it is important to state that this is my personal opinion.

The ongoing debate on net neutrality reveals clashes of several public goals and interest groups. Should service providers have the freedom to sell products of their choice to customers of their choice, or should they not have this freedom? Do consumers have the right to use internet services as they have always been used to? Should the open “ethos of the internet” continue to remain so even after it has passed out of the US government’s management and into the hands of the international community? Will an internet with different lanes for different traffic remain the internet as we know it? Should application and content providers like Facebook, Twitter and WhatsApp enjoy greater profits despite making much smaller investments than telecom service providers?

The issue is complex and entangled, and we should resist the temptation to see it as a fight between good guys and bad guys. There is nothing wrong in corporations trying to maximise their profits as long as they conduct business in a legal and ethical manner. It would be wrong to project telecom service providers who are seeking to improve their profitability as villains. Similarly, it is rather pointless for them to look at over-the-top (OTT) services like Facebook and begrudge them their profits. Different industries have different risks and different rewards. Consumers too cannot claim that things should be as they are and every change is a negative development.

So what should we make of this issue? I would like to answer this question by asking “what is India’s national interest with regard to IT in general and the internet in particular?”. There are three aspects to our national interest:

First, given that less than one in ten Indians has access to broadband, it should be a national priority to increase penetration. There is a correlation between broadband penetration and economic growth rate. India’s development needs our economy to leapfrog into the information age: for this we need reliable, affordable services. So when thinking about net neutrality at this stage, the government must give the highest priority to ensuring the maximum number of people take up broadband in the shortest duration possible.

This, however, should not come as a result of price regulation. Fixing prices and a government that worships at the altar of “low cost” will result in damage. Low prices should come as a result of market forces and competition.

Second, given that India’s IT industry is an engine for growth and development, we must ensure that it remains globally competitive. The industry is worth more than 100 billion dollars and employs more than 10 million people. There are thousands of startups in the country aiming to become the next Infosys and FlipKart. Our IT policy should not create more hurdles for entrepreneurs and ensure that they have the best possible start to build world-class companies. Without Net Neutrality, the risk that startups will face even greater “unfair disadvantages” against established firms is higher.

Third, it is in the public interest for the telecom and mobile service provider industry is healthy and competitive. In the past decade, the regulators pursued the goal of forcing the telecom providers to lower user tariffs. While India has one of the lowest costs of telecom services in the world, the service quality is patchy. Calls drop frequently. Broadband service often is of lower speed and suffers outages. Billing services are terrible. Anyone who has tried calling the customer service helpline of any telecom provider will attest to the fact that it is very difficult to get anything done. All this is because telcos are cutting costs in these areas. There are few lucrative or premium services left where they can increase their profitability. The only protection they enjoy is through licensing — the government limits the competition they face.

When deciding what to do about net neutrality, we must keep all three considerations in mind, and optimise them simultaneously. If the government opens up the telecom service market to greater competition, perhaps by issuing unlimited licenses, then there is a case to allow them the freedom to discriminate among customers. As the state-owned carrier, BSNL can provide a neutral internet. However, if the government does not open the sector to further competition, therefore shielding the telecom service providers from more competition, then mandating net neutrality provides a reasonable approach to promoting the public interest.

The current debate calls for the government to review the entire licensing regime and consider full liberalisation of the telecom industry.

1 thought on “On net neutrality and the national interest”

  1. Very rational analysis. However, you also need to add the issue of each side approaching this issue from a very self-centered perspective. It was evident from the US experience that the net-neutrality bandwagon was largely propped by the behemoths (google, fb, and above all netflix) to essentially free-ride on the networks. That said, it was really the network providers who dug their own graves by offering users flat pricing instead of pricing linked to usage. They can’t bill the consumers by usage anymore so they turned around and tried to shill the suppliers.

    The marginal cost of carrying an extra electron over the network is 0, so from narrow perspective, the case for paid fast lanes (not very different from wheeling charges in electric grids) is very weak. And this is what probably prompted the flat pricing models in the first place. What the operators didn’t plan for was the massive increase in licensing costs for next generation networks. As they go back to new licensing auctions, they are realizing they have to pay hell of a lot more than they anticipated, and so they need to extort money from somewhere to make up for it.

    What’s the solution? You are correct in noting that the ideal solution should be prompted by the imperative to increase penetration — this requires balancing the investment incentive of the operators with the fears of users and suppliers. A simple, possibly over simplistic approach would be to allow tiered pricing. So up to some level of bandwidth consumption, every supplier pays same price. But at various thresholds, operators are allowed to charge suppliers a higher transit fee (wheeling charges). This would allow all small suppliers to compete on even keel, while allowing network operators to establish some level of usage based pricing so they have incentive to invest and expand penetration. The losers would of course be the big suppliers (biggest consumers of bandwidth), but if the pricing is regulated (like electricity), the impact to them will be limited. Of course, a seat on the pricing board for the major suppliers and operators would be a good start. The suppliers realize they need the operators to deliver their services, and if the operators don’t invest, they will have to build out networks themselves, which they don’t want to.

    In the meantime, they will keep pushing the net neutrality straw man to keep their margins sky high.

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