India has the best argument against net neutrality

DOES India present the world’s best argument against net neutrality? Possibly. In a matter of weeks, the country’s telecom regulator will decide whether telecom companies – which also happen to be India’s major internet service providers – will be allowed to charge different prices for differential use of data over the internet.

Activists are outraged by a recent consultation paper floated by regulators, which they say is biased against net neutrality – the principle that all data should be treated equally on the internet. They’re equally outraged by a plan from telecom major Airtel – called Airtel Zero – that offers subscribers free access to certain apps like the e-commerce platform Flipkart, which pays Airtel for the privilege.

In this case, the activists’ outrage may be off-base. India’s policy framework for telecom and the internet argues for a relaxation of strict net neutrality, even as regulators keep a close eye on anticompetitive practices.

Access

The end goal of policymakers and activists should be the same: enabling cheap and quality internet access to the maximum number of Indians. Given the low penetration of broadband and computers, the only way to extend the reach of internet widely is through telecom firms: Some 800 million Indians own cellphones.

To this point, India has benefited greatly from one of the world’s most vibrant and competitive telecom sectors, made up predominantly of private firms. Those corporations have a right to make profits. Yet government policy has created a tough environment for these players.

The state auctions off only limited amounts of telecom spectrum, thus artificially creating scarcity and forcing companies to pay huge amounts to acquire spectrum (more than peers in advanced economies). In addition to paying taxes, corporations must contribute 5 percent of their revenues to a Universal Service Obligation fund to finance rural broadband. A brutally competitive sector forces down tariffs well below advanced economy levels, particularly for voice services.

Bandwidth

Under the circumstances, telecom companies have a compelling argument for charging differently for different bandwidth use. For example, it makes perfect sense to allow them to charge extra for voice over internet protocol (VoIP) services, which clog up a lot of bandwidth. These services are hardly used by India’s poor.

Remember also that unlike in advanced economies, India still needs to build much more telecom and internet infrastructure. Private companies can only make those investments if they earn a decent profit.

That said, regulation is necessary to prevent anti-competitive practices. By charging to give some apps and platforms priority, Airtel Zero’s approach is a grey area. Should one e-commerce platform be allowed to pay Airtel effectively to gain an advantage over competitors, who might not be able to afford the same fees? This is not quite the same as charging higher prices for services that use more bandwidth. This is discriminating within a bandwidth category.

Airlines charge different fares for seats on the same plane, but there’s rarely serious discriminatory pricing within a category. Similarly, toll roads can operate parallel to free highways; those who want to travel faster can fork over the extra money. But should one user of the toll road – say, a private cab company – be allowed to pay more and crowd out its competitors from using the same highway? That’s effectively what Flipkart is doing with Airtel Zero.

India’s debate on net neutrality is in danger of confusing anti-competitive practices with legitimate price discrimination. There’s a need to separate the two – and to appreciate the value of competition. – Bloomberg

End goal of policymakers and activists should be the same: enabling cheap and quality internet access to the most Indians.