Professor of Law at Columbia Law School Tim Wu is credited with popularising the concept of network neutrality in a paper published in 2003. Since then, the word has gone round.
It may have taken some time to reach India, but once it has, Wu’s formidable academic resonance can be felt loud and clear. Until a few weeks ago, 'net neutrality' was an obscure entity in India, even for those shopping in malls with iPhones in hand and residing in up market residential locales.
One fine morning, it all began to change. Telecom companies, e-commerce portals, internet service providers, politicians and bureaucrats in a short span of four months have not merely woken up to 'net neutrality' — allowing equal access to web content – it has in fact, turned into a top-of-the-mind subject.
From non-descript boardrooms, these two simple words have risen to great prominence, slowly making their way to online chat rooms, drawing rooms of families and even bedrooms, dividing peoples’ loyalties as never before. Some have grasped the concept while others may have not, but the momentum of the debate has grown.
Simply put, net neutrality (NN) means telecom service providers must treat all internet traffic on an equal basis, no matter its type or origin of content or means used to transmit packets.
All points in a network should be able to connect to all other points in the network and service providers should be able to deliver traffic from one point to the other seamlessly, without any differentiation on speed, access or price. The principle simply means that all internet traffic should be treated equally.
Birth of a dispute: The ongoing debate came to the fore late last year when India's largest telco Bharti Airtel, led by billionaire Sunil Mittal, announced it planned to start charging users extra money for services such as Skype. It indicated that its internet or data plans that give customers discounted rates will only be valid for internet browsing and will exclude Voice over IP services (VoIP). VoIP services include Skype, Line and Viber that typically let users make free calls through the internet.
Within a week, however, Airtel dropped its plan to charge clients extra for internet communication services such as Skype, amid the debate on allowing equal access to web content and a backlash from subscribers. But even then, net neutrality did not occupy the amount of mind space that it does now.
In mid-January this year, the department of telecom almost silently constituted a committee and its terms of reference included an examination of net neutrality and its public policy objective.
The issue exploded full scale into public domain when the country's telecom regulator Telecom regulatory authority of India (Trai) on March 27 floated its 118-page consultation paper that ended with provocative questions like ‘Should the OTT players pay for use of the telcos’ network over and above data charges paid by consumers?’
Many construed, perhaps erroneously, that Trai was taking the side of telecom firms in the matter. The deadline for sending comments ended on April 24 while counter comments can be sent till May 8.
Even as responses to Trai's paper started flowing in the hundreds at first and then thousands, the second week of April saw two major events that added masala to the whole debate and perhaps shaped the discussion in a significant way.
First, India’s largest online marketplace Flipkart said it would end talks with Bharti Airtel to join its new marketing platform for mobile application makers. Flipkart was in negotiations to join Bharti's Airtel Zero platform, where mobile application makers pay for data usage, which then enables customers to use applications for free.
Flipkart co-founder Sachin Bansal, who earlier defended Airtel Zero and had criticised the opposition to it in the name of net neutrality, walked out of its tie-up with for this platform saying, “we have always unequivocally supported net neutrality and will continue to do so”.
He had earlier tweeted in defence of Airtel Zero: “When foreign companies do it in India Innovation... Indians do it – Violation. #NetNeutralityDiscrimination?” This apparently resulted in Flipkart drawing a lot of flak online with many users even deleting the app from their phones to show support for net neutrality.
Gopal Vittal, MD & CEO of Bharti Airtel India & South Asia in a communiqué to customers said: “Our platform is open to all application developers, content providers and internet sites on an equal basis. The same rate card is offered to all these providers on a totally non-discriminatory basis. There is no difference between this and toll free voice such as 1-800. When a company selling an insurance product enrolls into the toll free voice platform, customers who call the number are not charged but when they call a normal number they are charged. Calls are not blocked or given preferential treatment else our whole business would be jeopardised. Toll free voice is not a product or a tariff plan but a technology platform. We are simply taking the same concept of toll free voice to the world of data.”
As questions started being raised about Facebook's Internet.org initiative, its boyish founder Mark Zuckerberg jumped into the debate and said offering some services for free does not go against the spirit of net neutrality.
Meanwhile, several Indian internet based firms like Cleartrip and some media firms reportedly walked out of Indian launch of Facebook’s ambitious project that promises to take internet to hitherto untouched locations. Cleartrip said: “The recent debate around #NetNeutrality gave us pause to rethink our approach to Internet.org and the idea of large corporations getting involved with picking and choosing who gets access to what and how fast. What started off with providing a simple search service has us now concerned with influencing customer decision-making by forcing options on them, something that is against our core DNA.”
Mobile internet penetration in India is pegged at around 25 per cent. The balance 75 per cent of the Indian population has yet to experience the benefits of internet. The top priority from the Indian perspective should be to extend the benefits of the internet to the balance “1 billion Indians”. Expansion would require more telecom infrastructure and at this moment only telcos do that, which is probably why they have a greater say if it comes down to them and the other over-the-top (OTT) firms.
The heat generated by net neutrality reached parliament. “Government notes with assurance the growth of internet in India and wide platform it has offered for innovation and creativity. Government strives for non-discriminatory access to internet for all citizens of the country,” communication and IT minister Ravi Shankar Prasad said in a bland written reply to Lok Sabha.
The minister, however, said that there is divergence of views among countries on the extent of neutrality desired for internet service providers and regulatory measures undertaken to enforce them.
The global conundrum: Before delving deep into the myriad net neutrality perspectives globally, we must understand that telcos and OTT communication service providers on paper offer the same communication services such as voice and messages. While telcos say they are subject to a number of regulatory and licensing requirements, such as payment of licence fee, taxes and security conditions, they rue that OTT communication service providers have no such obligations.
OTT players, or internet platforms and services as they like to call themselves, say the current structure has contributed to expanding internet and in the Indian context are strongly regulated through the powerful and effective IT Act 2000.
OTT services are viewed differently by different nations. Some countries view voice over internet protocol VoIP as a voice service while others see it as data — a value-added or information service, basically a data driver.
For example, Dominica views VoIP as voice, while Bolivia, Czech Republic, Egypt, Jordan and the United States view it as data. In the European Union, VoIP can be classified as either an electronic communication service or as a publicly available telephone service i.e., both are classified as communication services.
The regulatory framework of countries largely depends on the stage of development that OTTs have reached in that country. This is why Indian industry body Assocham argues India needs its own desi version of net neutrality. In most countries, the regulatory framework for the treatment of communication OTT players is being debated. The way to deal with other OTTs is being analysed on a case-to-case basis.
For communication OTT services, developed countries such as the US, the EU and Japan are veering towards net neutrality to promote openness and non-discrimination. But, even in their cases, there is no unanimity or policy announcement just yet. And, in the EU there are variations on the theme.
On the other hand, some countries have altogether prohibited OTT services (or insisted on regulatory compliance). For example, some governments in West Asia have blocked Skype. In China, VoIP (PC-to-phone) is classified as a basic voice call service; hence, only major operators with basic telecom service licences are allowed to provide VoIP services.
Why OTT is hot, or probably not, for Telcos: Telecom service providers like Bharti Airtel, offering fixed and mobile telephony, are currently being overwhelmed by online content, or OTT applications and services. The term over-the-top literally means these applications and services — which are accessible over the internet — ride on operators’ networks offering internet access services e.g., social networks, search engines and video aggregation sites. The best known examples of OTT are Skype, Viber, WhatsApp, Snapchat, Instagram, Google Talk, Hike, Line, WeChat and Tango.
E-commerce sites like Amazon and Flipkart are also part of the OTT bandwagon. Even Ola, Facebook Messenger, Black Berry Messenger, iMessage, online video games and movies (Netflix, Pandora) are, in a way, part of OTT clan.
The characteristics of OTT services are such that even the biggest telcos realise revenues solely from the increased data usage of the internet-connected customers for various applications (popularly called apps). The telcos do not realise any other revenues, be it for carriage or bandwidth. They are also not involved in planning, selling, or enabling OTT apps. On the other hand, OTT providers make use of the telcos’ infrastructure to reach their customers and offer products/services that not only make money for OTT space, but also compete with the traditional services offered by telcos.
And this is where the problem lies. Voice, message and video content have now been reduced to mere ‘bytes’. On the business side, net neutrality has become a high-stakes issue between telcos and OTT service providers on who will get the bigger ‘bite’. Every single entity, be it telecom operators, internet service providers and internet services firms, that Financial Chronicle spoke to, said they all stand by principles of net neutrality, but when it comes to application they all have different perspectives.
Campaigns like SaveTheInternet, floated by enthusiastic youngsters on social media have ensured that a veritable avalanche — over one million responses — came for a quaint Trai consultation paper titled ‘Regulatory Framework for Over-The-Top services' which includes a chapter on net neutrality. That’s got to be a record of sorts.
The net neutrality issue in the Indian context seems to be the result of this new cold war involving telecom operators, who buy spectrum and build telecom infrastructure, and OTT service providers, like Facebook and Skype who ride on telecom networks.
They also offer platforms and services that have engaged consumers in a way, telco executives in private conversations admit, their companies haven’t been able to.
Telcos complain that when OTT firms offer free messaging and phone calls on their networks, it puts a strain on their infrastructure. These ‘free services’ hit telcos hard as mobile users then don't spend money on making voice calls and SMSes. The telecom industry has been suffering from poor financial performance, mainly because of two factors -- hyper competition resulting in low tariffs (lowest in the world) and multifold increase in spectrum prices.
On the other hand, OTT firms have defended their position, saying that consumers already pay money for using data and it’s none of telcos' business to say why consumers are using free voice calls on the internet or using almost free Whatsapp messages to say Happy Diwali instead of sending SMSes that are not free. In fact, SMS rates rise on such special occasions.
Says e-commerce firm Infibeam, “access to equal internet speed for any website or mobile app is the right of every consumer who is paying money for data.”
Access to the world wide web or internet is an elitist topic in India even as millions debate on net neutrality and the threat its violation supposedly poses. In fact, the irony here could be considered profound. Less than one-fifth of the rural population has access to a latrine. Yet, nearly 255 million in the same country are tagged as internet users (of these, 86 million users have access to broadband internet).
Industry executives say just 10 per cent of mobile users actually consume 90 per cent of operators’ bandwidth. India, which has the world’s second-highest number of mobile phone accounts after China, is the also third-biggest market by number of smartphones sold. The list is endless in terms of stats. In one sentence, India is a big and growing market and nobody, be it Facebook or Vodafone, will like to lose out on it.
Voice calls, SMSes are history: There has been a steady decline in the SMS and voice revenues for telcos thanks to OTT apps. Theoretically, with data usage increasing at a very high rate, data revenues should make up for the loss in SMS and voice calls. But in reality, it hasn’t. Why? Because there exists a substantial arbitrage between voice and data realisation per unit of network resource. For every SMS lost, a telco loses 16p revenue and gains a mere one 1p of data usage charge. For every minute lost to VoIP calls, a telco earns just 4p against 50p earned today.
While a minute of voice, which utilises network resources equivalent to 0.25MB of data, realises a revenue of 36 paisa, telcos realise only six paise when the same network resource is consumed as data for OTT communication services (VoIP). Ironically, this differential pricing was designed to drive data adoption in the Indian context. Clearly, telcos never guessed what was coming when they designed such structures.
At current realisation, every 1 per cent of telco voice minute that is substituted by OTT VoIP would lead to a Rs 1,200 crore revenue loss to the industry. Don’t be fooled by numbers such as over 960 million wireless voice subscribers in India. A large part of that number still uses prepaid telecom services and barely uses calls/SMSes.
The average revenue per user of telcos hasn’t exactly risen either. As an industry, telcos are no more the sunrise sector that once saw its unbridled rise (and also a few scams). Today, Indian telecom firms are high on debt looking to find ways to cut their costs and ramp up sales.
Industry estimates suggest telcos have invested Rs 7.5 lakh crore since inception. Of this, Rs 3 lakh crore has been put into acquiring radio spectrum during the last five years. In the same period, the financial health of the telecom industry has deteriorated, with the cumulative debt burden going up from Rs 82,000-odd crore in 2008-09 to over Rs 3 lakh crore in FY 2014-15.
Telcos have made it clear, in a veiled threat to be read between the lines, that unless authorities intervene, data prices are going up significantly at a time when the Modi government has grand plans for a ‘Digital India’.
Already, the cost of an entry-level broadband plan in India is equivalent to 5.5 per cent of an Indian’s per capita income which is high in comparison to a similar plan that accounts for 0.5-0.8 per cent of per capita income in countries such as Singapore, the US and the UK and even Sri Lanka (2.9 per cent) and Malaysia (3.2 per cent).
What the future beholds: Kallol Borah, CEO & founder, Lukup Media, India’s first OTT TV service, says internet needs to be neutral - no internet application provider ?or consumer should be deprived of or get different treatment based on a special contract or payment made to the telecom or internet service provider. “However, we all know that telecom and internet infrastructure requires huge investments and since that infrastructure is so poor and not available to all, there is a case of a levy made equally on all internet application providers by internet service providers based on outgoing traffic that such internet application providers consume. So, if a website sends out X GB of data another website sends out Y GB of data, they will pay an additional charge per GB to the internet service provider.”
IT industry lobby Nasscom feels that as mobile penetration approaches saturation levels, voice traffic would plateau and rising data traffic will be the driver of demand for more telecom infrastructure. “In the long run, a revenue stream calibrated to the demand/consumption of data is the way forward to ensure that the demand driver and revenue generator are aligned.”
Even as it would be foolish to second-guess what authorities will finally do, there is a clear shift towards ensuring regulation of OTT players. The concept of regulatory neutrality, the same services, same customer protection, whether offered by an OTT communication player or a telco, will gain currency until and unless OTT firms share the burden of building telecom infrastructure. For most OTT firms, this could be a change in their business plans as infrastructure building requires more capital.
“OTT firms offer services that are often free to the customer, being funded via advertising or other business models. They have built billion dollar businesses on this. Any drastic change in that model will hurt them. Conversely, free messages and calls add that bit of allure to their services as far as consumers are concerned. That can’t be tinkered with too much. So, that leaves them with the only plausible option of getting into commercial agreements with telcos and spending some money,” said a veteran telecom executive, who has led one of the top three telcos. Looks like the scene is getting increasingly competitive.
