Net Neutrality: OTTs are doing well because they’re better

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Updated: April 17, 2015 8:40:57 AM

We must retain the basic principles of net neutrality, but not blindly adhere to the same model that has worked elsewhere.

net neutrality, net neutrality India, net neutrality debate, net neutrality airtel, OTT, OTT services, ott players in india, Mobile internet, Internet in IndiaGiven the rise of mobile internet in India, the telcos claim that OTT players such as Hike cannibalise voice and SMS revenues. (PTI)

Every couple of decades comes a new set of technologies that end up disrupting the existing business models. This is the cycle of life. We’ve seen this phenomena occur many a times over the last century globally across multiple industries. We saw it happen in the US in the late 1800s with the shipping industry being disrupted by railroads. We saw it again in the early 1900s when kerosene oil lamps got disrupted by the rise of AC electricity lighting homes in a much cheaper way. Today, we are in the midst of another, and I do believe there are subtle differences between the disruption of today and previous cycles because of how tightly coupled the new and the old paradigms are: internet and telecom companies.

One of my favourite authors on the topic is Carlota Perez. She’s written a great book called Technological Revolutions and Financial Capital. The book is quite heavy but the main idea is the ‘Perez Technological Surge Cycle’ (chart 1).

net-neutrality

Today, it doesn’t take a wise man to know that we are on the left side of the curve. Mobile internet is rapidly taking off in India. As a result, there are many start-ups finding new ways of solving existing problems in a better manner and at lower cost, given the rise and adoption of new technology. This leads to new business models emerging that disrupt the older ones, leading to these new companies gaining significant traction in the market, leading to them raising a tonne of money, leading to further disruption.

The internet disrupting traditional industries isn’t a new phenomena; it’s just that it’s now starting to happen in our very own backyard. The one that’s gotten the most heat is the so-called battle between the OTT: messaging/VoIP players and telecom companies, and that’s what I’m going to focus on.

OTT vs telcos

Given the rise of mobile internet in India, the telcos claim that OTT players such as Hike cannibalise voice and SMS revenues. They claim that it is ‘unfair’ that OTT players can offer the same services that they do (i.e. voice and messaging) free of cost, piggybacking on the expensive infrastructure telecom companies have to deploy, while the telecom companies are forced to charge a fee for similar services. This leads to a ‘loss in revenue’ as users shift from traditional voice and SMS to OTT services.

There is no doubt that this shift is happening. And it’s not only because OTT services are free of cost but also because products build by OTT players are 10x better. Have you ever tried starting a group chat on SMS? Don’t bother. Because it’s not possible.

The big question here, though, is what’s the result of this shift? What’s the result of this disruption? Are telcos really losing revenue?

Not really. Any little cannibalisation happening on SMS and voice is overshadowed by the rapid growth in data revenue, growth that OTT players like ourselves are driving for telcos (chart 2).

In a traditional disruption cycle, it’s a 0-1 situation, but unlike other cycles, this particular cycle of disruption is benefiting telecom companies in India, given that the disruption is happening on top of their infrastructure. The more people use OTT services, the more data packs get sold. In the long-term, this is a clear win-win situation. We can already see it happening.

So, why are we trying to regulate OTT players and force them to pay a fee to telcos when our very existence is driving revenue growth for them? I’d say, let’s flip the argument. Why don’t we, as OTT players, start asking telcos to pay us a percentage of data revenues for driving their data revenue growth? Sounds absurd, doesn’t it? Because it is. Both ways.

The current open ecosystem around the internet is driving growth for all and there should be no question of OTT players being regulated.

(There is still the point of security that Trai brought up in its consultation paper and I believe a broader discussion needs to happen on the topic. This particular point isn’t about OTT vs telcos but more about our nation’s security.)

State of mobile internet in India

Everything around net neutrality and regulating OTT players stems from one source—mobile internet in India, and I’d like to bring some data to light on the market that will help us understand how data is actually used in our country.

There are many experiments happening globally, especially in emerging markets, on how mobile internet is consumed. One of them is the idea of sachet packs—the ability to buy internet in small doses. We did quite a large survey of almost 100,000 Hikers on what kinds of data packs they used, and based on their usage extrapolated it across our entire user base to understand them better (chart 3). Based on our data, our best guess is that today comfortably over 50% of India’s mobile internet market is still dominated by sachet packs and users consuming the internet on a per 10 kb basis! That’s just incredible. The big question that we asked ourselves was—are people on sachet or volume-based charging (VBC) experimenting with the internet? Or is this just how the internet is consumed in India?

After speaking to countless users directly, it’s quite clear that the sachet pack behaviour isn’t experimental, it’s real internet usage. The bite-sized minutes/SMS behaviour has carried over to data and every single telco we speak to confirms that this really is how India uses the internet.

There are over 1 billion people in India that will come on to the internet for the first time in their lives on a low-cost smartphone. Over 1 billion people will experience powerful compute for the first time in their lives. Should the experience of these people be exactly the same as those of us who’ve had the fortune of witnessing a PC and a broadband connection and the internet over the last decade?

As we’ve grown the Hike into a product used by tens of millions of users sending over tens of billions of messages a month in just two short years, we’ve seen how dramatically different India is with every incremental 5-10 million users and we’re starting to question that very concept. It’s been an eye-opener for us.

Today, we have users who we speak to who do not know how to sign up to the Hike despite having Hike pre-loaded on their phones. There are users who we speak to, who do not grasp the understanding of what KBs and MBs mean. Bear in mind, we are still speaking about the top 100 million. What about the remaining 1-odd billion?

That brings me to zero rating. ‘Zero rating’ is a practice where telcos subsidise the cost of data for a specific application to boost usage of data services and to grow their business. To tackle the mass, many telcos have resorted to zero rating to make the cost of experimenting with the internet zero. Now, in essence, this may be good for the consumer because the cost of trying the internet is zero; however, it’s not cost of the internet that’s zero, it’s the cost of a specific service chosen by the telco being zero. This isn’t great for the ecosystem because the telcos end up favouring one particular service over every other. It’s a bit like VAS. A closed off ecosystem where telcos have a final say over which company or service gets preferential access to their network. There is just no transparency.

(By traditional zero rating, I do not mean the Airtel Zero initiative. Traditional zero rating is things like Facebook Zero. Airtel Zero is a whole different discussion, one I hope to touch upon later.)

This brings me to the topic of net neutrality. What is net neutrality? An excerpt from a Trai paper: “Net neutrality (NN) is generally construed to mean that TSPs must treat all internet traffic on an equal basis, no matter its type or origin of content or means used to transmit packets. Service providers should be able to deliver traffic from one point to another seamlessly, without any differentiation on speed, access or price.”

No blocking. No throttling. No preferential access. These are the three tenants of net neutrality.

I am extremely pro-net neutrality. It is one of the most important topics of this generation and I urge every single person reading this post to check out—www.savetheinternet.in—and send a response to Trai on this matter (a big hats-off to the folks who created this).

By default, the internet should be open. By default, telcos should not discriminate against any kind of traffic, any kind of services and all traffic should be equal. More importantly, telcos should not be allowed to restrict or give preferential access that could result in picking winners and losers on the internet.

This is by far the most important point. Telcos should not dictate who wins or loses.

Internet in India and net neutrality

India is consuming the internet very differently compared to the West. Over 50% of the market consumes data in small sachets or VBC. As I said, this is still the top 100 million and even within this segment we have people who do not understand what KBs & MBs mean. If the top of the pyramid faces such problems, what happens to the remaining 1 billion people? Again, as I said, should the experience of these people be exactly the same as those of us who’ve had the fortune of witnessing a PC and a broadband connection and the internet over the last decade? How do we build an ecosystem where we can tackle the nuances of the mobile internet market of India, make access to the internet simpler for the masses, more tangible, more affordable and at the same time keep the principles of net neutrality intact?

I see many people who speak about net neutrality sit in that top 15-20% and don’t necessarily seem to grasp the understanding of how mass India consumes services on the internet. The fact of the matter is that most people in this country don’t consume the internet like they do. Most of the market today consumes the internet in a bite-sized/pay-as-you-go format. There are further over 1 billion people in our country that will come on to the internet for the first time in their lives on a low-cost smartphone with no clue as to what the internet even is. Over 1 billion people will experience powerful compute for the first time in their lives in this country. On top of that, over 60% of India’s population lives on less than $2/day and almost 25% under $1.25 per day.

As a result, it’s not outlandish to think that India may require a complete re-look at the go-to-market and business models around the internet.

At the same time, we also must realise that this is India, not the US, not China. Our market dynamics are very different from the rest of the world. We cannot simply copy/paste what’s worked and what’s not worked in those markets.

We must give room to both sides of the industry to experiment and bring down the cost of the internet significantly for the billion-plus population without blocking, throttling or discriminating against any service, with the basic principles of net neutrality intact. Because, at the end of the day, that’s what matters. Bringing over 1 billion Indians online.

Kavin Mittal

The author is founder & CEO of Hike messenger. Views are personal

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