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Viability, not just neutrality

A healthy market, and not just a neutral net is the key to upholding national interest 

by Pranay Kotasthane (@pranaykotas)

A neutral net — defined conservatively as a denial of abilities that allow one type of internet content to be relayed differentially over others, is a desirable outcome for India. Even so, a neutral internet is not enough to ensure the success of the internet ecosystem. The bigger deal is to remove barriers that prevent all the stakeholders of the ecosystem from having a decent shot at succeeding in their game.  

The reasons for the argument made above can be found in the answers to a set of four questions listed below:

1. Where does India’s national interest vis-à-vis the internet lie?
India’s national interest in a knowledge economy relies on successes at the level of individuals and enterprises, both. Individuals want more & better connectivity to the internet. Provided that the individual is ready to pay for it, he/she should be free to tap the information and knowledge flows from the internet. At the enterprise level, India’s growth agenda requires the success of its enterprises. Given how the three sectors of the Indian economy have developed, we are closest to success in the information space rather than on the shop floor or on the fields.

2. What does upholding this national interest require?
We need the internet ecosystem to succeed as a whole, which means that we need successes in every part of the system—software product creation, communication networks and storage servers. Note that this is in sharp contrast to the arguments that we have been drawn in over the TRAI consultation paper. The paper projects the ongoing debate as a clash of interests between the internet content providers and the communication services providers. For upholding our national interests, as defined above, we don’t have an option. We need ALL the sides to win.

3. What are the factors that will enable all sides to win?
The good news is that this is not a zero-sum game. Though the communication services industry may project that internet content providers are parasites, it really isn’t. It is rather a case of an overly regulated market which is preventing the system from functioning optimally. Removing all unnecessary ex-ante regulations will lead to increased competition and contestability, enabling a healthy market. The three key factors in this regard are:

  • Regulations on the communication service providers must go: The government regulator is trying to optimise for several objectives through the communication providers. As a result, there are restrictions on voice call rates, guidelines for ensuring regional balances in terms of connectivity, caps on additional services like roaming, caps on number of players in each circle, tough merger and acquisitions process to prevent collusion and so on. And all these objectives are being laden on the shoulders of the communication providers who are looking to run a profitable business.
  • No regulation on the internet content providers is acceptable: The question of whether regulations should apply to even the internet content providers is currently being debated by TRAI. Having seen the problems that the communication service industry has got in to, there is no case for these regulations. It is unequivocally against the national interest.
  • Consumers must not be stifled from entering the knowledge economy: This is where the government has a role to play through its own service—BSNL. BSNL needs to be seen as a vehicle for protecting consumer interests should the industry run into troubles. BSNL already has favourable terms and conditions with regards to spectrum allocations. As long as it is not seen solely from the objective of making profit, it will help check collusion in the market by providing a credible alternative.

4. What should be done to bring these success factors to life?

  • We need to lift existing regulations on communication services industry. Beyond the rules that apply to other industries for preventing predatory practices, there is no reason why the regulators should micromanage the operations of the industry. Currently, the communication network providers have been able to hide behind these restrictions, taking the easier path of seeking further regulations on internet content providers instead. Network providers fear passing on their costs to the end consumer and a fearful industry goes against our national interest.  Once the suffocating regulations are lifted, the network providers would be confident of raising prices and fight it out in the market to serve the consumer better. This might well lead to consolidation but that’s the inherent reality of the marketplace.
  • To uphold the interests of the end consumers, net neutrality as a principle must be upheld. This is because communication network providers should not have the unfair advantage of being able to price internet content differently. Once the communication networks are setup, costs do not change with consumers accessing different content. In any case, the communication service providers are free to have fair internet usage policies to prevent induced demand effects.

In summary,  net neutrality is just one of the parameters of the internet ecosystem. Our interests lie in net neutrality and far beyond it as well.

[Other responses on this topic by the Takshashila Community: Varun Ramachandra’s take: Net neutrality is like Net Neutrality, Anupam Manur’s take: Using price discrimination to ensure Net neutrality, The Financial Viability of net neutrality by Devika Kher, How 2ab explains net neutrality by Karthik Shashidhar, Thoughts on Net Neutrality and Zero Rating by GK John and On net neutrality and national interest by Nitin Pai]

Pranay Kotasthane is a Research Fellow at The Takshashila Institution. He is on twitter @pranaykotas

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