Net neutrality nonsense

Net neutrality: Not charging extra for VoIP services sounds appealing, but who is going to fund the rollout of India’s telecom?

By: | New Delhi | Updated: March 31, 2015 7:22 PM

If Google has a Project Loon and Facebook an internet.org it is because they realise telecom infra needs to be paid for and they can’t just clog it up

Given the pasting Bharti Airtel got over its decision to charge a higher data rate for voice-over-internet services like Viber, it is not surprising it chose to beat a hasty retreat. But Bharti Airtel’s strategic retreat should not be seen as a victory for the sloganeering over what is called ‘net neutrality’, jargon for treating all data traffic in a similar manner.  The ‘net neutrality’ argument being made sounds logical, but it is inappropriate for India for a variety of reasons, and all of these will be examined by the Trai before it comes to conclusion on how to treat such services.

Even before we begin to examine the ‘net neutrality’ argument, it is important to keep in mind there is no common view on how such neutrality is to be achieved globally; much of what is being discussed in OECD countries are just various options. In even the US and Europe where data penetration levels are upwards of 70% (voice penetration is at 100%) – this means the telecom networks have all been rolled out – telcos have said they will reconsider future investments if the cream is going to be taken away by the Googles of the world, and this is when data packages are far more expensive in the US and Europe as compared to what they are in India. That’s why Google is working on creating its own internet network through Loon ballons, and that’s why Facebook – another big guzzler of telecom data networks – is working on internet.org which seeks to compact data so as to reduce the clogging up of data networks built by telcos at their own expense.

If this is what is happening in developed markets, the situation is a lot more adverse in India. For one, around 40% of Indians still don’t have voice networks, and data penetration is just a little over 12%. If a network has to be rolled out to meet these needs – EY estimates Indian telcos need to invest Rs 2.5 lakh crore over the next 7 years – someone has to pay for it. If, on the other hand, data-guzzlers like Viber and Skype are to clog up all the networks, what incentive do telcos have to roll out the networks considering just a tenth or so of their revenues come from data services?

The profits from data services, the maths makes it obvious, are not enough though proponents of ‘net neutrality’ will argue the Bharti Airtels and Vodafones make enough money from bandwidth charges and should be happy with that – this is the same argument which says a restaurant owner does not pay for making the road that services the outlet.

An additional point that needs to be kept in mind is that, even today, telcos contribute 5% of their revenues to what is similar to ‘net neutrality’ – 5% of revenues are paid out each year for the Universal Service Obligation which is used for funding rural broadband. If this same revenue was to be used to fund the telcos’ own networks, they wouldn’t be as averse to voice-over-internet clogging up their networks. Short point: if net neutrality is the public good it is being made out to be in the new Digital India, like an LPG subsidy for instance, let the government cut cheques to pay for it – roads, to use the restaurant-road analogy, are paid for by the government, not private firms. Unlike in the OECD countries, India dramatically over-charges for spectrum, so much so that most of the capex of telcos comprises spectrum fees. On top of this, telcos pay around 28% of their annual revenues by way of licence fees, spectrum and microwave charges and service tax.

Let’s also get it clear that while ‘net neutrality’ is a compelling idea, too much is being made of it. If you move away from telecom, while there is ‘net neutrality’ in other sectors as well, it is not absolute. In the electricity sector, all consumers using under 300 units of electricity in India pay a lower flat rate, but this uneconomic pricing is made possible by charging those using over 1,000 units a month a higher price – so there is ‘neutrality’ in rates, but only within each block of usage. Airlines are ‘neutral’ in that they give equal access to customers, but charge different rates for different seats within the same aeroplane, and charge people different rates for the same seat depending upon when they book. And in the good old days – or bad old days, depending on how you view private telcos – when government-owned PSUs ruled the roast, local calls were subsidized by charging customers a hand and a leg for domestic and international long distance calls; charging them a flat rate – which is what the ‘net neutrality’ debate boils down to – would have killed telephony in India even before it took off.

If Bharti Airtel is guilty of anything in the VOIP debate, it is of getting its strategy wrong, of not being able to convince people differential pricing lies at the heart of every business, and that it is the better-heeled customers who can afford smartphones who are benefitting from cheaper VOIP calls at the expense of the less fortunate who are paying many multiples more for their plain vanilla phone calls. The fact that other telcos chose not to follow Bharti Airtel’s example and jack up rates for VOIP services – Bharti Airtel backed down only because it realized it would lose customers to its rivals – also proves Indian telecom isn’t anywhere near the oligopoly it is made out to be.

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