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Business News/ Opinion / Net neutrality: it is all about consumer interest
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Net neutrality: it is all about consumer interest

In the cacophony over net neutrality, the most clichd, yet the most essential, principle has been all but lost: competition in a market ensures consumer interest

The reality is that in a competitive market, violation of net neutrality might spark the digital revolution that India has been awaiting with baited breath. Photo: Hemant Mishra/MintPremium
The reality is that in a competitive market, violation of net neutrality might spark the digital revolution that India has been awaiting with baited breath. Photo: Hemant Mishra/Mint

Both the telecom companies and the Praetorian Guard-like defenders of net neutrality have resorted to fear-mongering to win public opinion. Of course, one could accuse the telcos of ending up with their noses a wee bit longer every time they claim that their zero-rating services are meant to serve consumer interest.

In their exhortations to the public to defend net neutrality at all costs, the defenders seem to treat it as an inviolable and standalone principle, instead of just another instrument that should be employed to further consumer interest — the one and the only litmus test that any idea must be based on.

The myths

To make an informed decision on net neutrality, it is imperative to demolish myths perpetuated by either side. I will begin with the telcos’ myth: OTT (over-the-top) services such as WhatsApp and Skype are cannibalising their revenues.

On the contrary, OTT services are driving the telcos’ revenues. A look at their finances shows that voice revenues plateaued after 2012. The growth in revenues has been propelled by data usage, as is evident in the quarterly financial results of Bharti Airtel Ltd and Idea Cellular Ltd released this week.

Now, it shouldn’t be very difficult to figure out what exactly is driving data use: the staid Wikipedia and Google searches, or the fancy OTT services that keeps the users hooked all day? To make a larger point, in the Internet ecosystem, neither the telcos nor any website/app can claim ownership of the customer. While it’s obvious why OTTs are dependent on telcos, it’s a certainty that if a company stops offering OTT services, it would lose a massive chunk of its customer base.

Meanwhile, the defenders have largely succeeded in creating the impression that net neutrality is a pre-requisite to the existence of Internet as we know it. The reality is that in a competitive market, violation of net neutrality might spark the digital revolution that India has been awaiting with baited breath.

The defenders have conveniently conflated two separate issues: price prioritisation (such as in Airtel Zero) and speed prioritisation (involving slower access to certain websites).

It serves their cause because the first, which is a much more nuanced topic, can be easily buried underneath the avalanche of noise created about the second, which is obviously detrimental to consumer interests. If a telco hands over a 3G pack to me, which gives only 2G access to certain websites, it’s shortchanging the consumer.

Price prioritisation isn’t evil

However, the first (price prioritisation) can’t be dismissed offhand on such simplistic arguments, which is why the US FCC (Federal Communications Commission) has kept it out of the net nuetrality debate, and it continues to thrive there. There are essentially two arguments against price prioritisation: it restricts access to the infiniteness of the Internet and it reduces the likelihood of another Google being created. While there is considerable weight in both arguments, let us look at the other side.

The fear that collaboration (notice that the word “cartelisation" is conspicuous by its absence) between telcos and Internet giants would stifle competition from startups stems from the fact that they don’t possess pockets as deep as their rivals’ and, hence, can’t lure customers to their competing social network.

But what if—and this is a big if—the fee being charged by the telcos isn’t extraordinary? What if it forms only a minuscule share of the startups’ investment? That would certainly mean that a huge market awaits them, which they could not have accessed otherwise.

This could spur a new generation of entrepreneurs in India. If websites/apps pay for the increased customer base of the telcos, this should further drive down data charges. Lower revenues would mean the consumers could afford to access even the unpaid parts of the Internet, thus eliminating the “limited exposure" drawback of price prioritisation.

Besides, free mobile Internet would also mean greater penetration, which is currently 20% of all mobile users, of which 3G is a very small part. This could bring about an economic boom.

There is only one way to remove the dependency on the “ifs" in the above paragraphs: fair and fierce competition. If that happens, even speed prioritisation, though strictly in the form of positive discrimination, could be in consumer interest. If, on a 2G pack, a website/app wants to allow access to its users at 3G speeds, why should that be a problem? Paying more to access better service is a fundamental market principle. Only in this case, it’s the website/app which is paying more, and the better service it avails of is the increased traffic.

But what if...

All rosy so far, but what if competition broke down? There exists a very realistic possibility of market failure, owing to cartelisation (discerning readers would notice the replacement of the word “collaboration" used earlier) between the telco and the website/app.

In such a scenario, all boons discussed above would turn into banes. The two parties would raise unsurpassable entry barriers by charging an exorbitant fee from a newcomer. The inability to pay such a fee would mean that any competition would die. Note that this would also require cartelisation among telcos since the newcomers could easily opt for another telco, if one was being unfair. This is precisely how telcos managed to annihilate VAS.

This is, however, not the only entry barrier available to telcos. Cross cartelisation between telco-telco and telco-website/app could also result in higher data charges for the consumer, who would then stick to only the free websites. In a widely circulated missive, Airtel likened zero-rating services to toll-free numbers. That’s simply not true. Firstly, there’s no one losing revenue if all calls are directed to the toll-free number. Secondly, why would you call the toll-free number if you had to talk to your dad? In the case of Internet, users simply “stumble upon" many sites. In case of high data charges, such experimentation would be a thing of the past.

Another dangerous possibility lurks. So far, talks of price prioritisation have only been in the realm of OTT. But what stops telcos from extending the definition of OTT to, say, blogs? After all, I could be putting the information I would ideally communicate over phone on my blog. That makes me an unsuspecting OTT. Considering there’s no dearth of rich bloggers, this is a sure shot recipe to stifle those countless faceless warriors of the Internet who’ve been screaming out silently against oppression and injustice.

Consumer interest is sacrosanct

As with any other industry, to ensure consumer interests in the telecom sector, competition is the key. Lack of competition, with or without net neutrality, is detrimental to consumer interests. It can’t be denied, though, that violation of net neutrality presents a huge opportunity of cartelisation. The Indian government has so far done a commendable job in the telecom sector, but this could be an entirely different animal to handle, since two big industries—telcos and Internet content providers—are coming together. Great caution and foresight are required. Depending on how effectively the government can ensure competition, violation of net neutrality could be a boon or a Faustian bargain.

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Updated: 19 May 2015, 02:21 AM IST
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