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Friday 17 January 2020

Unwarranted neutrality

Net neutrality campaigners have painted the question of net neutrality as that of life and death of the Internet’s openness and vibrancy. The language used to spread the message is pretty colourful too:

Airtel (India’s leading TSP) is killing the Internet

 

Save the Internet

 

Stop Screwing Up the Internet

So what would Net Neutrality Regulation involve?

  • No Zero Rating: for example, Airtel Zero-like services where content providers like Flipkart or Facebook may pay Airtel on behalf of consumers so that their content is available to consumers for free over other players.
  • No Non-Discriminatory Access: a fancy way of saying TSPs won’t be allowed to use price differentiation and ensuing quality of service (QoS) assurances on select content groups. They will have to give Porn and Communication between say two hospitals the same priority. And TSPs would be barred from prioritising their own applications (or apps) over the rest by, say, not charging for data charges on it.
  • No Throttling: reducing or increasing the speeds of some when compared to the rest.
  • Telecom Service Providers are to be dumb networks and nothing more.

To enforce this, the Internet will have to be governed by the regulators similar to say the electricity sector minus the price discrimination. I think this prospect will bring to your mind very fond memories of power outages. This surely looks like it will help and incentivise innovation!

A question that immediately comes to my mind is: How the hell can government regulation increase or preserve society’s freedom? Government regulation can only ensure one thing — curtailment of freedom. If it does appear that it can increase freedom, you have not bothered to consider — at whose expense?

Imposing regulations wherein you curtail the freedom of producers to price their products as you (or the government on your behalf due to pressure put on it by you) wish them to do is morally revolting. It is akin to legal plunder.

Bastiat was absolutely right in writing

The law has been perverted by the influence of two entirely different causes: stupid greed and false philanthropy.

Prophylactic or preventive regulation?
The entire gamut of such regulation will be a vertical anti-trust action. There is no conclusive evidence that vertical integration (either through special deals or outright buys) results in reduction of economic welfare. There are models which predict that there is such a possibility but absolutely no empirical evidence. Nada. Should the basis for such far-reaching regulation be a non-existent proof? Other actions possible in the free market like price differentiation and quality of service assurances too haven’t been proven to be bad for economic welfare by empirical evidence.

So, in total, the campaigners are asking for net neutrality so that they have a preventive solution to a non-problem!

Competition

Users with faster Internet connectivity (e.g., fiber) abandon a slow-loading video at a faster rate than users with slower Internet connectivity (e.g., cable or mobile). A 'fast lane' in the Internet can irrevocably decrease the user's tolerance to the relative slowness of the 'slow lane'.
Users with faster Internet connectivity (e.g., fiber) abandon a slow-loading video at a faster rate than users with slower Internet connectivity (e.g., cable or mobile). A ‘fast lane’ in the Internet can irrevocably decrease the user’s tolerance to the relative slowness of the ‘slow lane’.

Any such regulation, which surely takes away revenue opportunities and freedom from producers, will impose huge costs on the telecom service providers and thus decrease overall completion in the sector over time. This will ensure that consumers are left with less choices when choosing their TSPs. Therefore, are the campaigners trying to increase consumer welfare by decreasing the quantum of consumer choice? Even I, a mere 1st year BCom Honours student, know that this extremely foolish. So foolish that it borders on the nonsensical.

Net neutrality concerns in the US were based on the assumption that there was little consumer choice for most consumers. Is it the same in India? There are more than 100 ISPs and 6 TSPs (with Unified Access Service Licences) in total all over India. Does this reflect the paucity of consumer choice?

Impact on future possible innovation
An additional problem of such intrusive regulation on a market and network, which is still very much evolving, is that such regulation does not consider the costs imposed by it on innovation possible in the future. An example I can think of is auction markets. As they evolve, and an increasing number of auctions take place online, won’t the absence of quality of assurance service from TSPs or ISPs reduce market efficiency?

Another is the education sector. Should TSPs and ISPs be barred from prioritising real time video conferencing between a teacher in Bangalore and students in a small private school in the rural hinterlands over a service like porn (I have to stress here that I have nothing against online porn).

Zero rating

Banning Zero Rating is harmful to start-ups as well as established players in many ways:

  • It bars them from using innovative pricing strategies to capture market share from their competitors.
  • Such bans hinder Internet penetration in developing nations like India, thus keeping such prospective markets unlocked. New businesses are born when entrepreneurs see an opportunity to earn profits through offering their services. And these opportunities increase when the size of the market increases. Therefore by hindering the growth of the market, you are hindering innovation.

Grouping and price discrimination

There is a lot of hue and over the possibility of TSPs/ISPs bundling/grouping services and, in the process, indulging in price discrimination. But what is wrong with it? Who shouldn’t one discriminate in pricing if given the opportunity and costs are less than benefits? Price discrimination is an integral part of free markets and an extension of right to property.

Solutions to this conundrum are fairly simple

  • Decrease Regulation for TSPs; at the same time don’t think about imposing any such regulation on OTT service providers.
  • To allay some concerns of these internet revolutionaries, mandate zero- rating platforms to be opened to all those ready to pay and qualify for a minimal set of specifications. This rule has to be temporary though.
  • Encourage best-efforts network management by TSPs/ISPs through moral suasion.
  • Redesign the spectrum allocation process to enable better competition and resource allocation as well as reduce inefficiencies in the process.
  • Privatise BSNL. It is an extremely inefficient user of spectrum and other infrastructure and acts as a poison pill to the entire sector thereby burdening both consumers as well as TSPs.

Conclusion
Net neutrality regulation is an extremely dangerous concept. This assault by net neutrality activists on freedom and property is immoral and counterproductive.

Heed Swami Vivekananda’s advice:

They ask us for bread, but we give them stones. It is an insult to a starving people to offer them religion; it is an insult to a starving man to teach him metaphysics.

The poor Indian aspires to be digitally connected. They ask for cheaper Internet. Don’t give them duds. It is an insult to these people that you dare to offer them your religion (net neutrality).

The views expressed by the writer are his own.

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