Where the challenge is scarcity, not competition

Written by Mahesh Uppal

November 25, 2014

On November 10, US President Barack Obama came out strongly in support of network neutrality, a principle that requires equal treatment of all internet traffic. He called upon — he cannot legally order — the US regulator, the Federal Communications Commission to “create a new set of rules protecting net neutrality and ensuring that neither the cable company nor the phone company will be able to act as a gatekeeper, restricting what you can do or see online.” Most internet users would share Obama’s opposition to arbitrary blocking or slowing down of any content, especially if a commercial entity attempts to do so. However, it is risky for India to follow Obama’s lead on net neutrality.

The main reason is that the Indian and the US broadband markets are qualitatively different. American companies Comcast and AT&T derive their near-monopoly power from their ownership and control of underground fixed infrastructure. Bharat Sanchar Nigam Limited, their Indian counterpart, has no such advantage. With its dominant share in fixed lines, it has barely 17 per cent of the 60 million broadband customers. Indian users can choose among nearly 10 operators in most service areas — unthinkable in most countries. Thus, Obama’s main argument — the need to prevent abuse of broadband markets by monopolies in control of fixed lines — does not apply.

In India, the challenge is scarcity, not competition, as the broadband market suffers from small size, not from dominance by any player or technology. Fixed lines constitute barely a third of India’s limited broadband connections. Roughly 90 per cent of the 251 million users of the internet access it on mobile phones. Optical fibre will, of course, play an important role when the proposed but much-delayed National Optical Fibre Network is in place. It will take years before fibre can challenge wireless for broadband access.

Wireless networks pose unique challenges for ensuring net neutrality. It is more complicated to expand their capacity to accommodate increasing amounts of data. For fixed line networks, the challenge is mainly the finance needed for upgrade. However, for wireless networks, increasing capacity requires adequate spectrum — a scarce natural resource. The right frequency bands are critical, too. For a telecom operator, acquiring spectrum is not trivial, even if it is willing to pay. In India, the government auctions the spectrum in quantities and a timeframe it decides. There is a detailed regulatory process to determine reserve prices and other features of the auction. Expanding or upgrading the predominantly narrowband wireless network is a financial, technical and regulatory challenge.

Imposing net neutrality prematurely might be counterproductive. India needs massive investments in its networks — wireless and wireline infrastructure — to reach the levels of developed countries, where nationwide fixed-line networks have existed for over 30 years. Net neutrality could hurt unserved regions, where the business case might already be weak.

Major promoters of net neutrality, such as Facebook and Google, recognise the environment in developing countries. They are entering “zero rating” arrangements with mobile operators to offer preferential, cheap or free access to their services. As David Talbot first pointed out in the MIT Technology Review in January, such agreements violate net neutrality. They promote “walled gardens” and discriminate against smaller content players, whom net neutrality seeks to protect.

Developing countries cannot be rigid about net neutrality. Proponents and opponents of net neutrality highlight two equally important aspects of the future role of internet in our lives — the right to its content and the incentive to create the infrastructure to access it. Net neutrality, therefore, raises difficult questions that demand nuanced answers.

The debate about net neutrality, despite being couched in the language of public policy, is primarily about two formidable sets of commercial players with markets and profits to expand and defend. Thus, AT&T and Comcast in the US want large content players, such as Netflix and Google, whose video services consume almost half their bandwidth, to share the costs of creating and maintaining infrastructure. Accepting such a demand is a downhill slope for content companies, whose advertisement-driven business models depend on increasing reach and usage of date services.

Regulators in the wireless-driven markets of developing countries face a formidable challenge in reducing the risks of unbridled net neutrality. They must reconcile the interests of network owners and those of heavy users.Asking the very big users of data to share some costs is not unreasonable. It might even promote larger network neutrality goals.

The writer is a consultant on telecom regulation

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