Monday, June 08, 2015

Strive for a Balance between Access & Price

Written for IAMAI's 'Thinking Aloud' Magazine. 

The TRAI consultation paper on Regulatory Framework for Over-the-top (OTT) services 2015, certainly revealed a few biases by asking what India could learn from ETNO or best-practices from other countries at the end of Chapter 4 on Regulatory Interventions for OTTs in Other Countries. ETNO, or the European Telecommunications Network Operators, put out a plan in 2012 to enable European telecom operators to negotiate pricing schemes with OTT providers. This included OTTs paying ‘fair compensation for traffic’, new models to provide Quality of Service, and non-interference by governments in such arrangements between the network operators and information services. The price of popularity would be settled privately, without intervention by the regulator in negotiations.

This chapter in the TRAI paper then goes onto summarize the regulatory frameworks and best practices from around the world. Briefly, these offer three distinct models: the first, offers separate regulatory regimes for communication services and non – communication services, as in the case of Germany and France. The second model is based on the use of price discrimination on traffic to ensure development of broadband infrastructure, as is followed in the UK and Korea. And finally, the third model that prescribes , a ‘fair, reasonable, and non-discriminatory’ approach to deal with regulatory issues, such as is the practice in Korea or with ETNO.

Thus, it would appear that the question seems to be asking, Should TRAI regulate OTTs or allow telecom companies to negotiate directly with OTTs service providers on the issue of charging them for growing data traffic?. Surprisingly, however, there is another model that has been spelt out in Chapter 4, but oddly, is absent from the list of Queries at the end. This is the model which the USA is attempting to chart out for themselves, i.e.: ‘bright-line rules’ for the internet which includes principles of ‘no blocking, no throttling, and no paid prioritization’ of data. In the US, ‘Reasonable Network Management’ is allowed, but the ISPs must ensure that network management have legitimate aims and are not used to provide ‘unlimited data’ or other anti-network neutrality practices.
Since the TRAI has looked to other countries for ideas and inspiration for developing an Indian model, it is fair to first examine the market that is being addressed. India has 12-15% internet penetration, with further rise expected via mobile phones. Today the country has 140 million smartphones, which are getting cheaper to buy, by the day, and 687 million GSM phones in rural areas. The internet is a vehicle of growth; outside of the acknowledged popularity of VoIP services, there is also the expectation that e-commerce will fuel internet growth as well. E-commerce generated sales of $16 billion in 2014, while overall the retail industry in India is valued at around $600 billion. Additionally, the government’s ‘Digital India’ initiative is also expected to fuel traffic; in fact, it already has in rural areas. Reports indicate that the first half of 2014 has seen 3.5 billion electronic transactions, of which 1.7 billion transactions were related to e-governance projects. 35% of these transactions came from rural areas. Broadly stated, content, commerce and e-governance will be drivers of the internet in India as much as infrastructure, availability of electricity, connectivity, access and pricing will be.

If one ignores the telecom arguments for paid prioritization and examines whether schemes like zero-rating would help promote internet penetration, a different set of questions emerge. Is it better for citizen-consumers to have access to some limited sites free of cost than to have no access at all? Can zero-rating, in some ways, be compared with “free sampling”, following which users might want to experience the larger internet? And, could paid prioritization packs be designed to become ‘Digital India’ packs, which could contain part commercial data, part news data, and part socially and locally relevant and useful data, thereby helping rural citizens to access both free content and also use e-governance apps at no cost? The answers cannot be simple, and perhaps they cannot be effectively answered by those who have no problem in paying monthly internet bills.

These questions are intriguing. A few years ago, internet users may remember, the expectation of users was that all content on the internet would be free. Some bigger brands attempted to start content-subscription based models, but actually, an advertising-based model today supports most of the freely available content. Internet users also pay for free content by surrendering their data . Ultimately, an innovative, even if a morally ambiguous model emerged, wherein consumers were connected to advertisers, which enabled ‘free’ content.

And this is when we start examining ‘free’ access that comes with its own caveat. Allowing citizen-consumers to access only certain websites for free, could over the long term, end up creating ‘walled gardens’ – a term which denotes a closed ecosystem in which the carrier or service provider has control over applications, content, and media, and restricts convenient access to non-approved applications or content. This goes against the principle of free and open qualities that have made the internet the tool it is today – an engine for economic growth and innovation. In fact, given that only those platforms which can afford to pay for prioritization would be offered for free, the entire exercise has an anti-competitive angle to it. And it must be noted that the conversation in India is looking at internet service providers breaching the network neutrality principle of ‘paid prioritization’ as opposed to a conversation about internet ‘fast lanes’ which have fuelled arguments in the US about preserving network neutrality.

If Indian ISPs were to offer varying degrees of speed to sites in a market already struggling with internet speeds, it would certainly mean that smaller and newer OTTs would be simply defeated by the internet wheel of time. Could this mean that the market leaders of today would simply institutionalize their leadership online, or could fundraising models for all future apps necessarily have to account for ‘zero-rating’ or ‘fast-lane’ charges?

So what should India do, going ahead? Create two competing versions of the internet; between those who would like to access the full spectrum of internet sites and those who would rather subscribe to digital packs which offer a few products at a zero-rating? Would this fulfill the government’s aim to achieve 50 crore internet connections by 2018, or is this what it means to have a ‘Digital India’? The Minister for Communications and IT has called the internet ‘the finest creation of human mind and it does not encounter any boundary and it does not get stopped by geography,” adding that it “must be owned by the entire mankind, not by a few.”

Perhaps, India should seek to strive for a balance between access and price, without surrendering on the network neutrality principles. Shouldn’t the telecom operators wait to see what new streams of revenues would develop for them as the internet grows in India? Shouldn’t companies be able to promote their brand in the country, but compromising on the key principles that has so far set the internet apart from other mediums of communication? And finally, shouldn’t people have a clear understanding of what the hidden costs of “free” really is, and if they are willing to pay for it?
One lakh emails to the regulator aside, this conversation is certainly not over. Ironically, what it has done is encourage 1 lakh people to engage with the bureaucracy, in a democratic system, by actually sending in their comments to the TRAI consultation paper. Now, imagine, if you didn’t even know about this because your internet pack only focused on cricket and movie songs?

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