Draft Response to TRAI in support of differential pricing for Data services

This is a draft response to TRAI on their consultation paper on Differential Pricing for Data Services. Please feel free to comment, suggest improvements and most importantly use in part or in whole to send in your comments in support of Differential Pricing for Data Services. (Structure borrowed from the STI campaign)

Emails should be sent to advisorfea1@trai.gov.in

Dear Sir,

Thank you for this Consultation Paper on Differential Pricing for Data Services; The TRAI should bring in rules that foster innovation not just in the Internet services Domain, but also in the domain of Internet access. This will invariably mean to allow a free hand to TSPs to innovate in distribution and pricing. This would include differential pricing - especially the practice of “Zero Rating” and other such innovations.

I hope the TRAI considers my answers.

Thanking you

My answers:

Question 1: Should the TSPs be allowed to have differential pricing for data usage for accessing different websites, applications or platforms?

Telecom Service Providers should be allowed to have differential pricing for data usage for accessing different websites, applications or platforms.

• This is no different from how Internet services and software firms create and price products for different classes of customers (by geography, economic capacity even feature set). They do so to be able to increase marketshare, improve revenue yield in the hope of being able to make money after a given period.
• While the freedom for differential pricing is made available and is unquestioned in the case of commercial services by Internet Services and software firms. This freedom of differential pricing is being denied to commercial services by TSP firms.

Price differentiation is a reality in whichever space we care to examine. Better seats in a cinema, tiered cost of power, end use based coal prices etc.

Price differentiation may be advantageous to aid the spread of the Internet across India. It may lead to temporary walled gardens, but eventually, customers will escape from such a garden. In the interim, customer base will expand far faster than previously believed imaginable. I would like to cite three examples to illustrate this.

1. America On Line (AOL) which ran a walled garden accounted for 10% of the TOTAL customer base in the WORLD. This was achieved on the backs of aggressive marketing funded by the services available on the network. Ie the services paid to be in the network. With these funds AOL sent out millions of access kits to potential customers and provided them a fast ramp on to the (walled garden) internet. The customers would also pay for this privilege. Once customers got used to using the Internet, they sought better and wider coverage and competition provided the right type of services for them to graduate to them.
2. The current surge of growth of Internet services is on the back of mobile apps driven by Apple. The one thing most people miss about this revolution is that app stores (from where you can download he apps) are effectively walled gardens. An open garden approach was available to the world in the form of competing platforms like Symbian. But it was the walled garden approach of Apple that finally kicked things into high gear. A lot of Venture Capital was spent to capture market share in India and other markets of the world. The operators of these walled gardens have changed rules arbitrarily and yet the ecosystem survived and grew dramatically. Eventually, now there is fatigue with apps and people are now demanding that the services be again available on the general web, so that they don’t have to deal with dozens, if not hundreds on apps on their devices. The recent u turn of Flipkart from app only back to web is illustrative of how people want to escape the walled garden after the initial novelty wears off.
3. The final example is in the form of the iMode service by DOCOMO in Japan. The iMode service was a walled garden where content providers paid a cut and were subject to significant controls by the operator. In 4 years, the network had over 35 million users. The competitive response was to create similar managed gardens of their own. As people in Japan sought better services, they discarded those gardens in favour of the open web.

In all the above cases, the open web succeeded, but what those years of competition and walled gardens did was to get people hooked on to data services.

Some other arguments that have been made, I would like you to take an objective view of them.

• It is argued by some that TSPs are merely dumb pipes. This is a dangerous argument. It’s like saying electricity companies cannot innovate because they provide utility services. They could for instance become TSPs or even IPTV providers on their own right if regulators don’t prevent them.
• There is an argument that there is no commercial justification of Telcos to indulge in differential pricing. This is a false argument. Telcos have every justification to gain as many customers and thereby marketshare as possible. Even if it means going into areas previously unserved and creating markets through innovative offerings like Zero rated services. Which brings to the fore the need for differential pricing.
• It is said spectrum is a public utility and TSPs have no right to further business interests. This is again a false argument. Without business interest, no firm will participate in any activity related to utilities. Coal is a public resource, which firms use to further interests in steel, electricity and others.
• There is an argument that consumers who stand to benefit from differentially priced Internet services will not be aware of the full internet. This is highly patronising to say the least and assumes that consumers are fools.

Other points not touched upon yet.  

• Currently Doordarshan runs a service called DD Direct Plus, which carries free channels. This service has neither run other services out of business, nor the content companies that ride on it. This is the closest analogy to the current consultation paper.
• Cable operators and DTH operators charge content firms for carriage. This has been a practice since the dawn of the service in India. This has neither led to the closure of channels, nor led to a curtailment of new channels launched.
• The views against differential pricing seek for regulation/ban basis forecasted harm. If this is the norm, cars should not be allowed on to the roads due to accident deaths and pollution potential.
• This is a business to business relationship, and anti-competitive, behaviour, collusion etc, ideally should fall under the ambit of Competition Commission.

What will work best for end consumers is a market driven process which allows developers, content companies, hardware providers and networks compete to discover pricing and market fit of those services. When market entities compete for customers and answer to shareholders, a complex balance is achieved. The alternative, is for business models to be run by regulators. Liberalisation in India has shown, that this is not the best way for any industry to grow.

Question 2: If differential pricing for data usage is permitted, what measures should be adopted to ensure that the principles of non- discrimination, transparency, affordable internet access, competition and market entry and innovation are addressed?

     1) Non-discrimination:

• If it is free for content providers to participate on price differentiated platforms, it should be free for all.
• If there is a pricing scheme on price differentiated platforms, that scheme should be published in advance.
• Pricing schemes basis bandwidth consumed (video vs plain text, heavy usage vs light usage) etc could also be in place.
• Compulsory targets (ever increasing) on the number and quality (as determined by popularity) of websites in the program could also be introduced.

      2)  Transparency: 

• Customers must compulsorily be provided the option to be able to subscribe to unsubsidised internet and intimated to the customer.
• Every time a customer starts using a price differentiated service, he should be intimated that this is a limited service and full service is available. This should also be in place, every time a customer jumps from a free section to a paid section.
• This could be through messaging on start/end every time a service is initiated and every time a customer makes a jump to the unsubsidised internet.
• The price of unsubsidised service should be same or lower than the areas where differentially priced service is not available.

Question 3: Are there alternative methods/technologies/business models, other than differentiated tariff plans, available to achieve the objective of providing free internet access to the consumers? If yes, please suggest/describe these methods/technologies/business models. Also, describe the potential benefits and disadvantages associated with such methods/technologies/business models?

Yes, several alternatives exist other than differentiated tariff plans or zero rated services.

Govt subsidies. In a country where access to clean water is a struggle, there is little point in asking to subsidise the Internet. It is far better to allow a private corporation to do it with non-public funds.

Advertising subsidies. 

• This is an option available in the differentially priced access as well. As such it is not an independent solution. 
• If this were a practical way to drive a universal access solution, there already would have been services out in the market. Fact is, that there is that these services have been tried and failed in the cities. Not sure how they will succeed in the poorer parts of the country.
• Even with the above and other options, a differentially priced option remains another option that should be explored. The moment private corporations interests are aligned with the interest of spreading the internet, they will deploy resources to achieve their targets.

Question 4: Is there any other issue that should be considered in the present consultation on differential pricing for data services?

I believe TRAI will take my answers into consideration in forming its opinion. Several experts in the field hold similar views on zero rating. Net Neutrality is not the holy grail of how access needs to be sold in India. It is a Business to Business affair and businesses should be allowed to figure out the market dynamics of it.

I urge you to read the following URL (some excerpts included below):

http://www.theregister.co.uk/2007/01/18/kahn_net_neutrality_warning/

Robert Kahn (Senior figure in the development of the internet}:
"If the goal is to encourage people to build new capabilities, then the party that takes the lead is probably only going to have it on their net to start with and it's not going to be on anyone else's net. You want to incentivize people to innovate, and they're going to innovate on their own nets or a few other nets,""I am totally opposed to mandating that nothing interesting can happen inside the net," he said.So called "Neutrality" legislation posed more of a danger than fragmentation, he concluded. 

Additionally, it should be brought to your notice that a pressure group has used deceptive methods, including emotional appeals, to get supporters to submit their responses to the present consultation. Several of those users may not understand the issue they are supporting. 

Why opposition to Free Basics is flawed

If purists are so offended by a limited offering, just don’t call ‘Free Basics’ the Internet

 A lot has been said about Free Basics, the free limited internet program by Facebook and its telecom partners. Mostly by people opposing it. Facebook is spending (reportedly) Rs 100 crore and using its own properties to make it a success.

It is ironical that people who claim to be avowedly pro-market are the loudest opponents of Free Basics. So much so, there is hardly a major voice that stands for it. Supporting it, is almost like supporting bigotry, and invites accusations of shilling for Facebook.  In the spirit of Laissez-faire, it is my contention that Free Basics should continue. Whether it succeeds or fails is something that the market should decide.

Let us analyse the main arguments that we have heard against Free Basics and why we should have a different view on them.

Who pays for it?

Since FB doesn’t pay Telcos for bandwidth. Telcos make too much money from us and are giving away bandwidth.

From the Telcos perspective, this is a marketing expense to acquire new customers. Unless the argument is that marketing itself are causing higher prices. In which case you should be complaining about the hundreds of crores being spent on marketing and customer service points.

The Telco has its own shareholders to answer to. If the costs of the program are not commensurate with returns (new paid signups), they will exit the program.

May have ads

FB says it will not have ads, but does not say it will never have ads.

This is irrelevant for three reasons.

First, making money is not a crime; Quoting Adam Smith:

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

Second, most content on the “open” Internet is subsidised by advertising. In that sense you are today a free customer, you just pay for access. Free Basics just takes that subsidy forward. Today that cost is borne by Telcos, tomorrow it could be by advertisers. It remains the end user’s choice, whether s/he wants heavily subsidised access to a few websites (aka Free Basics) or lightly subsidised (aka open Internet) or even, not subsidised (paywalled) Internet.

Third, when ads start appearing, Telcos will ask for a piece of that pie, thereby negating the first concern.

Privacy and FB access to usage data

This argument would be valid, if we ourselves stopped using Facebook and ALL sites that used Facebook integration. If we are not willing to let go of these services, who are we to set a higher standard for the target audience of this program?

FB does not have legitimate support.

FB may claim 3.2 million in support, but how many of those mails are legitimate?

The same statement could be made of the campaign against Free Basics. Have all those people who have signed up to oppose, fully understood the argument?

It’s keeping only FB and partners free

Yes it is. The market will produce its own challengers with wider offerings. Nothing stops Airtel and Google to create a similar offering of their own.

It’s not an open platform

FB sets the rules and can change those anytime.

This is correct. The answer to this is to codify the rules via regulation. Not a ban. Again competitors can come in with their own versions.

It will hamper innovation

It will become more expensive for startups to create products and services

People (including the poor) do pay for better service. Govt run schools and hospitals vs private schools and hospitals. If you have a great product, people will find their way to it. 

What are the alternatives?

Government subsidies

The government could subsidise ‘open’ Internet. And we will pay for it though taxes. Taxes that could be used in areas where private enterprise cannot function profitably, at scale.

Other models that are ad subsidised, user funded

There may be other models we like. And Free Basics is yet another such model. Two classes of market participants have come together to innovate on how to get millions of Indians online. Without the use of public funds.

The entire argument against Free Basics assumes, that the target customer and the telco are irrational actors, unintelligent to the ways of the world. 

There is a video by AIB that (correctly) mocked the fact that FB opened it’s voting on Free Basics to US audiences. Similarly it is laughable that active digital Indians get the right to decide how other Indians get on to the internet.

Tiered access as a solution

Most Net Neutrality champions are comfortable with the thought that advertising is a subsidy. Why should you have to treat Internet access differently? As long as the choice of higher priced 'open' internet remains available to customers? The idea is neither radical, nor new.

Telcos, Facebook and participating sites are businesses operating in an open market. When you choose to champion an anti-Free Basics campaign, you are essentially moving away from a pro-markets stance. 

If purists are so offended by a limited offering, just don’t call it the Internet.

Chirag is a technology executive turned entrepreneur bringing offline businesses and online user experiences closer together. He tweets as @chirag and blogs at www.marlinspike.in 

This article originally appeared on Business Standard.