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Business News/ Opinion / Leave the Internet alone
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Leave the Internet alone

The Net neutrality movement, although popular, lacks economic rationality

A maturing, commercialized Internet ecosystem needs unregulated flexibility to new options for end-to-end connectivity (particularly for new bandwidth and transmission of speed-intensive applications such as IPTV). Photo: AFPPremium
A maturing, commercialized Internet ecosystem needs unregulated flexibility to new options for end-to-end connectivity (particularly for new bandwidth and transmission of speed-intensive applications such as IPTV). Photo: AFP

The debate on Net neutrality is a misnomer of a social movement. Open Internet evangelicals—from economic polemics and consumer advocates to stand-up comedians—are running a misaligned campaign to save the Internet with little understanding of the underlying issues. The movement, although popular, lacks economic rationality.

Why should telecom companies, after spending millions to acquire scarce spectrum and after indebting themselves substantially to build telecom infrastructure while facing severe price competition, now be retrospectively saddled with a regulatory obligation that restricts reasonable forms of network management.

The acquiescence of the department of telecommunications and the Telecom Regulatory Authority of India (Trai) would signal a new era of retrospective regulatory terrorism—imposing new business costs, hampering the government’s commitment to ease of doing business in India.

A recent study by the New York University concluded that Net neutrality would cost Americans 500,000 jobs and $62 billion over the next five years. Trai, without conducting a similar study in India, should be wary of being moved by the populism of the 800,000 emails written to it on the subject.

At the same time, Trai’s regressive proposal of licensing over-the-top apps, which are responsible for driving bulk of the traffic to the telecom networks, reeks of an online licence raj—setting bureaucratic entry barriers to the development of this innovative Indian start-up market.

The idea that the Internet should be operated like a public road, carrying all traffic with no discrimination against any traveller, no matter what size, shape or type—is inherently flawed, especially given the present technological limitations of transmitting data on 3G/4G networks, which requires the network to prioritize data.

Moreover, a pure form of Net neutrality as espoused by the open-Internet zealots means Internet services providers (ISPs) cannot sell faster services to businesses or clusters of consumers who are willing to pay, stifling innovation, discouraging investments to better broadband infrastructure and hampering legitimate commercial activity.

It is important to understand that the ISP is mediating between two sides of the market—between the content provider and the final consumer. Upgrades to the network have to be paid for either by consumers or by the content provider or both; nobody knows beforehand what is the right pricing structure between these two sides.

There is no presumption that the right structure is to recover all of the cost of consumer broadband networks from consumers alone and allow the content providers to free ride with zero-priced network access.

A maturing, commercialized Internet ecosystem needs unregulated flexibility to new options for end-to-end connectivity (particularly for new bandwidth and transmission of speed-intensive applications such as IPTV). New bandwidth-intensive applications increase the probability of congestion and degradation of service quality, even in the absence of deliberate efforts by an ISP to throttle bandwidth-hogging subscribers, or to disadvantage competitors.

On the other hand, experiments with zero rating, where some types of content do not count towards data cap may lead to adoption of Internet than otherwise, though evidence of this has not built up, but why presuppose that zero rating is pernicious.

This public road of today’s Internet is a result of a continuous process of Schumpeterian innovation, which since the early 1990s disrupted dominant Internet applications, architectures and business models.

The Internet that we experience today is in no grave danger of dying and does not need a government takeover to protect its inherent innovative spirit. Any attempt to impose blanket behaviourial prescriptions to preserve a utopian notion of the Internet’s structural integrity disregards the subtle interactions of generation of innovators in their attempt to overcome the inherent limitations of the Internet’s protocol stack.

Researchers of the Karlsruhe Institute of Technology in Germany curated much of the research literature to date, in a 2013 paper titled Net Neutrality; a Progress Report, concluded that experts believe that given the growth of data traffic on the Internet, there are fears that a flood of data will ultimately overwhelm the Internet if proper traffic controls are not allowed. This will lead to congestion problems in peak times, which could only be counteracted by over-provisioning of network capacity, which India currently lacks.

As the Net neutrality debate matures, we suggest adoption of a policy that deregulates the Internet in a manner that allows ISPs to vertically integrate and bundle services, or use traffic differentiation to increase the variety of Internet access and applications to which customers subscribe, all within the contours of India’s antitrust laws.

India’s antitrust regime empowers the Competition Commission of India to block business activities that harm consumer welfare, restrict consumer choice or deny market access. Such enforcement with a precise enforcement mandate, exclusively targeting objectionable activities, while leaving other pro-competitive conduct that benefits consumers unregulated.

Antitrust analysis with its light touch approach provides a better pedagogic tool to analyse whether particular instances of prohibitions on the ability of network operators to control their vertical relationships would be socially beneficial, rather than a one-size-fits-all regulation, which is much more prone to stifling innovation and deforming the marketplace.

The form of Net neutrality the Indian Twitterati is espousing is an impractical answer to a largely imagined problem. The right approach to keeping the Internet free is to adopt a liberal spectrum regime, along with vigorous enforcement of India’s antitrust laws, without the perceived need for prophylactic network neutrality rules.

Payal Malik is advisor and head of the economics division, Competition Commission of India. Avirup Bose is an honorary visiting faculty of competition law at the Jindal Global Law School and a former expert consultant to the commission. The views are personal.

Sir, this is with reference to an opinion piece in the Mint titled "Leave the Internet Alone". The authors appear to be misled regarding the campaign for Net neutrality in India, although there isn’t a specific reference to, the group of volunteers, that seeded it. The draft responses we have published on our site request allowing for legitimate network management without paid prioritization, while requesting the enforcement of transparency to ensure prevention of discrimination. There is no move to disallow telecom operators and ISPs from selling higher or slower speed packs to consumers. There is a request, however, to prevent predatory practices from telecom operators via paid discrimination between the services that consumers access on the Internet, which would, in turn influence consumer choice. There is also an issue of cross-media ownership wherein telecom operators like Airtel can launch music services like Wynk, by virtue of their ownership of both content and carriage, advantage themselves by only allowing their applications to offer free data bundled with the service, or launch service are after service to compete with online service, in order to force competition to buy free data from them to address a disproportionate competitive advantage.

There is also a mention of IPTV and the need for end-to-end connectivity in the opinion piece, and hence the mention of requirement of flexibility. Lest we forget, a constrained and controlled option like IPTV has failed in the open and competitive free market that is the Internet. Consumers have chosen, given the lack of manipulation, so far, from the access service providers like ISPs and telecom operators.

I can only hope that Payal Malik, the head of the economic division of the Competition Commission of India, who co-authored that opinion piece, hasn’t made up her mind and reads our submission to the TRAI before calling our campaign misaligned. We hope for a fair hearing of all sides from the CCI in case they take up this issue that is critical for the future of entrepreneurship in India, and the participation of Indian businesses in the global marketplace that is the Internet.

Thanking you,

Nikhil Pahwa,

on behalf of the Coalition

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Updated: 23 Apr 2015, 08:37 PM IST
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