A ‘chota recharge’ model for the internet

By: and |
Updated: May 1, 2015 2:27:33 AM

Allowing telecom companies to calibrate internet access prices, based on consumer affordability, can increase usage by current customers and attract new customers

Open internet evangelicals have been scoring a few victories of late. First, the withdrawal of an e-commerce application from a service provider’s Zero-rated platform and the defensive overtones of Mark Zuckerberg’s open letter seemed to suggest that the ‘openists’ have got it right. Second, the artful management of the net neutrality campaign has created a political environment where the government’s non-espousal of the activists’ stand—of absolute net neutrality—will be perceived as endorsement of crony capitalism. Policy-making amidst such shrill noise is tough, and will require a true statesman to cut the Gordian knot of this polarised debate.

So acrimonious is the debate that few are willing to notice that an absolute net neutrality policy would be blatantly anti-poor. It severely curtails India’s step towards universal digital access—hurts expansion of coverage, especially to rural areas, and perpetuates the divide between India’s digital haves and have-nots.

Those who demonised zero-rating plans as ‘internet racism’ have failed to consider their potential to become a narrative of inclusive internet growth. Just as the ‘chota recharge’ schemes of Indian telecom providers in the late 2000s—a micro-prepaid recharge scheme that offered talk-time in denominations as low as $0.25, marking a shift from the earlier urban-centric monthly mobile bills, ideally suited for the low-income daily-wage earner—provided an innovative price discrimination model based on the affordability of a telecom user, in the same way zero-rating plans can allow the Indian internet industry to include the poor.

Zero-rating plans are joint marketing tools between network carriers and content providers to better market mobile-based internet access to new markets. These plans essentially help overcoming the high costs of internet adoption in developing countries such as India—especially for those customers at the ‘base of the pyramid’, for whom even the awareness of the internet and its potential relevance to their lives is low or non-existent.

With India’s affordable smartphone markets being one of the most robust in the world, such a transition would have been easier as long as such zero-rating platforms are made available to all content producers on equal terms.

In principle, why should not a factory worker or a vegetable seller, living in a mofussil Indian town, be able to buy a micro data pack and access certain preferred e-commerce websites for free to purchase consumer goods at affordable prices; where the e-commerce firms bear the tab? Why should farmers not be allowed to purchase a zero-rated pack to access farming, agricultural, education and other e-governance apps for free; where the government subsidises the carrier for such prioritised access? Why should an alleged neutral net for the urban middle-class be allowed to unprioritise the needs of those at the bottom of the digital pyramid?

According to the latest Trai data, India has 952 million wireless subscribers and only 79 million (a paltry 8.5%) broadband subscribers, and if one includes both wireline and wireless, broadband penetration in India is, at most, 10%. Compare this with developed countries which have greater than 100% voice penetration and 80% data penetration.

This gaping disparity between India’s digital haves and have-nots should make it obvious that government policy should provide access to the internet; in fact, it should be the regulatory priority. Zero-rating plans are examples of service process innovations which, through the instrument of the market, can increase India’s digital access to urban and rural poor. Such models of social entrepreneurship should not be made stillborn in India by heavy ex ante regulatory regime.

However, for its welfare implications to fructify, zero plans need to be offered by telecom companies on a non-discriminatory basis to all over-the-top (OTT) content providers—whether those catering to e-commerce sales or those providing irrigation tips to farmers.

Allowing the telecom companies to calibrate internet access prices, based upon consumer affordability, would increase usage by current customers and attract new customers. The resulting higher utilisation of the broadband network may enable operators to cover opex and capex, generating profits that make it possible to further grow networks at low-price levels, especially where such growth is most required—the rural India. This type of price calibration has been used as successful ‘long-tail’ retail strategy, of selling less to more number of people—no-frills airlines and the sachet-sized consumer non-durables sold by the FMCG companies are a few examples—where a compete overhaul of conventional business models energised markets at the bottom of the pyramid.

The fear that zero plans, by charging content providers, would make it more difficult for ‘edge entrepreneurs’ to enter the market, is a credible one. However, economic prudence suggests that it is in the interest of broadband providers to maximise the value of their network, by creating diversity of content. To block out edge entrepreneurs—which could drive millions of users to another network—would reduce the profits that the network could generate and, thus, reduce the value of the network.

Therefore, it is not in the economic interest of networks to block content, more so given the robust ‘churn rate’—the percentage of users leaving one network for another. Telecom consumers, now armed with the number portability facility, face negligible switching costs and will simply shift away from networks which build a reputation for blocking or throttling content. If, however, such fears become a reality, India’s robust anti-trust laws are equipped to effectively remedy such market irregularity.

It is important to clarify here that India’s internet access problems cannot be solely solved by private sector business models. India needs timely allocation of sufficient spectrum, allowing competitive secondary spectrum markets, and heavy public spending to roll out high-speed backbone networks nationwide. However, zero rate plans in the interim should (1) allow small steps towards universal digital access and (2) empower millions of Indian digital have-nots with the internet experience, bettering the quality of their lives—be it internet-based education, employment or the giddy satisfaction of consumer ‘retail therapy’. They should be allowed their ‘day in the sun’.

Payal Malik is advisor and head of the Economics Division, Competition Commission of India (CCI). Avirup Bose is an honorary visiting faculty of Competition Law at the Jindal Global Law School and a former expert consultant to CCI. Views are personal

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