US Federal Communications Commission (FCC) commissioner Ajit Pai. The US FCC’s new net neutrality rules would allow a carrier such as Verizon or AT&T to restrict access based on what businesses are willing to pay them. Photo: Reuters
US Federal Communications Commission (FCC) commissioner Ajit Pai. The US FCC’s new net neutrality rules would allow a carrier such as Verizon or AT&T to restrict access based on what businesses are willing to pay them. Photo: Reuters

Should Indian outsourcing companies worry about US net neutrality?

The US's stance on net neutrality can translate into trade policies that determine who gets what access, depending on where an IT firm is based or where it creates the most jobs

I realize that I am going out on a limb with what might be an alarmist column. Nonetheless, I will bow to my febrile imagination, which has been overwrought for the last few days, as I have pondered the overall effect that the new net neutrality rules mooted by the US Federal Communications Commission (FCC) might have. I feel I must give voice to some of my bleakest thoughts.

To appreciate my worries, it might be useful to briefly look at the history of the Indian Information Technology (IT) service provider industry. In the 1990’s, most IT service providers operated as ‘body shops’, sending their programmers to the US and other countries where there was significant demand for programming expertise on-site. Much of this was brought about by the Year 2000 or “Y2K" scare.

Droves of Indian programmers were issued H-1B visas (or similar) and flown out to the US or other parts of the world to address this challenge. They focused on the mind-numbingly boring work of converting the two-digit year fields across a variety of IT applications to four-digit year fields, so that come December 1999, the IT systems of their Western clients could smoothly roll from 1999 to 2000, a one year increment, rather than from 99 to 00, a 99-year decrease.

At the time, I was a senior executive in the US at International Business Machines (IBM), a company that had originally created many of the systems with the vulnerable two-digit year fields, but that did not apply itself to the Y2K problem with as much zest as the Indian upstarts.

The logic was that the problem itself was a short horizon problem—come 1 January 2000, the problem would cease to exist, and hiring droves of programmers into IBM to tinker with old systems was not worth the risk of the work falling off precipitously after 31 December 1999. Let the Indians take the risk was the common refrain, and come 1 January, employees at Western IT firms fully expected in our hubris that the Indian programmers would go “B2B" or “Back to Bangalore".

Meanwhile, another area of promise had IBM and other Western service providers in thrall, and that was the rise of the internet. The dot-com boom caused by the explosion of the internet after Netscape’s pioneering Navigator browsing program made its debut in late 1994 had most IT outsourcing firms scrambling to be at the top of this new market.

The US Telecom Act of 1996 came soon after, which allowed for competition in the internet service provider and telecommunications arenas, and set the stage for the beginnings of net neutrality. The resulting freedom caused telecom firms such as Cable&Wireless and AT&T to lay several thousands of miles of fibre-optic cable under the seas, in anticipation that the dot-com boom would continue for years to come. When the dot-com boom turned to bust in the early 2000’s, much of this cable was still “unlit"—or unused—since the demand for internet traffic fell far short of the fibre-optic capacity that now lay at the bottom of the seas.

The end of the Y2K era and the dot-com bust soon after did cause a vast number of Indian software programmers to return to India (playing out the B2B scenario), but with an important difference—the vast oversupply of data connectivity laid down across the world meant that the work for which they had to fly out to countries like the US, could now simply be inexpensively shipped to them via undersea cable instead. Thus began the “offshore" boom when the dot-com bust had passed, and what used to be a “body-shop" business soon metamorphosed into a business where the work was completed in India and then exported to other parts of the world over inexpensive data bandwidth.

Last week, I wrote a column about how net neutrality in the US is now at risk, with the FCC chairman proposing to roll back many of the laws encoded by previous administrations that ensured the internet in the US was a resource that was neutrally available to everyone, regardless of where they came from, or what information they were trying to access.

The FCC’s new rules would allow a carrier such as Verizon or AT&T to restrict access based on what businesses are willing to pay them. Interestingly, this could also translate into trade policies that determine who gets what access—based on where a particular company is headquartered or where it creates the most jobs, for instance.

In essence, a trade barrier could be thrown up by requiring US internet service carriers to discriminate in favour of homegrown outsourcers while keeping the non-US outsourcers from India, Latin America, and Eastern Europe out.

I believe it is difficult for governments to enforce trade barriers and that people will always try to find a way around them. Nonetheless, I will point out that countries like China and the UAE try to control internet data based on where it’s coming from, and that these attempts have given homegrown firms an advantage. These insular policies could provide a useful lesson to US trade regulators. Under the FCC’s proposed rules, an Internet service provider could slow down connections and traffic to non-domestic IT services firms, or even block them completely.

And should the current dispensation of the US government so require, this throttling of internet access coming from specific firms abroad could well be a sophisticated trade barrier or ‘wall’ thrown up, with the aim of keeping the programming work within America by stymying its portability to other parts of the world.

Last week, I said the FCC’s rules do not augur well for Americans, taking into account uniquely American concerns such as universal service, opportunities for small businesses to compete with larger, established firms, and so on. This week, I have been left worrying that they might not bode well for India’s IT outsourcers either.

Siddharth Pai is a world-renowned technology consultant who has personally led over $20 billion in complex, first-of-a-kind outsourcing transactions.

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