The social media scene in India is abuzz with an impassioned debate on net-neutrality. As TRAI issued a consultation paper on the subject, various commentators have expressed their views on this issue while others have launched a campaign in favor of net-neutrality. In these pages earlier this week, Shashi Shekhar, CEO of Niti Digital has argued that “India does not need net neutrality”.
This debate in India follows the United States Federal Communications Commission's (FCC) decision to enshrine net-neutrality in the US, thereby preventing Internet Service Providers (ISPs) from creating fast or slow lanes in the pipes which they operate to carry data. Long before the US, some other countries had adopted net-neutrality regimes -- the Netherlands as far back as 2012.
Network neutrality seeks to ensure equal, fair and open access to internet for all and seeks to achieve this by legally preventing any blocking, throttling or paid prioritization of any content on internet or any applications that use the internet to deliver that content to the end user.
The US FCC achieved this by classifying broadband internet services as a utility and placing mobile data services under its new rules. The classification of internet as a utility prevents service providers from discriminating among the content being consumed using the utility.
The argument against net-neutrality in India has been this: Telcos lose revenue when the user shifts to internet based services. This will make it difficult for them to invest in network enhancement, or innovate to ensure better services to the users. Others like Shashi Shekhar have opposed it as an unnecessary intervention in a free market which prevents more organic evolution of the industry.
The argument about loss of revenue and therefore profitability would have been more credible had it been rooted in some reality. There have been various reports by ratings bodies like CRISIL, ICRA and CARE (in Apr-15, Jul-14, Jan-15 respectively) extolling the rapid growth in data revenues for telcos thereby providing them “with diversity in growth avenues and better profitability”. Telco revenues can be broadly divided into two categories: voice and data. Voice revenues have been under pressure for some time now owing to plateauing of new customer additions. Data revenues, in contrast, have risen exponentially. Product managers dealing in data products in different circles have spoken about more than 100% growth in data revenues in the last financial year alone.
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Telcos themselves have been publicising robust double digit growth in revenues on the back of higher data revenues. The big three - Airtel, Vodafone and Idea - have all announced high growth in net revenues in the quarter ending December 2014. This itself should put all fears of a telco apocalypse due to internet apps to rest.
In his column, Shashi Shekhar spoke of the attempt to usher in net neutrality in India as being detrimental to innovation. Airtel Zero, the service which has been a major factor in this entire debate in the country is one such innovation which he feels is a legitimate business practice. This is a misleading argument. The attempt by Airtel to create a zero rating platform or the arguments by telcos against net neutrality are actually impediments towards real service innovation in the country.
Services like Whatsapp that have been adopted by Indian public themselves are a result of innovation that the telcos did not do on their own. Whatsapp succeeded in India because the Multimedia Messaging Service (MMS) provided by telcos were prohibitively expensive and really hard to use. So instead of making money per message as telcos intended to do, they are now making money out of running pipes, something that they have the license for. By creating their own walled gardens in this free, equal and open internet structure, they are now trying to impose their own distribution channels which would prevent more disruptions like Whatsapp in the future.
In case of a service like the SMS, the user was charged only at one end but in a service like Whatsapp both the sender and the receiver are billed for the data they consume. The trouble arises when the user connects to a wifi network at home or elsewhere. This is the real challenge that faces mobile service operators in India. They can succeed only by improving their own networks to prevent the users from switching to wireline broadband services.
The question that ought to be asked is - if telcos are making higher profits through data now, why isn’t there commensurate investment in enhancing network capacity? Where is the consultation paper about service quality or service assurance? TRAI’s own report says that something as basic as “accessibility of call centres/customer care has gone down in quarter ending Sep-14”.
Telcos (particularly GSM service operators) ought to focus on improving their network capacities to ensure that users pick their network instead of wireline broadband services to access internet. As per TRAI, in the quarter ending Dec-14, data revenue contribution to ARPU (Average Revenue Per User) was 16% for GSM subscribers. This is bound to increase with increase in smartphone penetration.
Absence of net-neutrality also makes us susceptible to monopolistic behavior. Each telco would be able to create little monopolies on its network favoring a particular service. This is not how markets are required to operate. As a regulator, TRAI ought to focus on ensuring fair, equitable and open markets for all future innovators and users instead of creating slanted consultation papers.
The policy framework ought to be made not only to enable affordable access to the internet but to also allow equal access to the complete internet. Any policy that creates sub-monopolies on a public utility is neither market-friendly nor in the larger public interest.