governance, political economy, institutional development and economic regulation

Even as Davos was worrying over the haemorrhage of international capital from emerging markets and Finance Minister Arun Jaitley was at pains to point out that India was different, a different narrative was unfolding in the Telecom Regulatory Authority of India (TRAI) in Delhi. It had to do with a consultation paper issued by TRAI on “Differential Pricing for Data Services” inviting responses from the public. The consultation process closed on January 7.

The breaking news a few days back was the quixotic outburst by a senior TRAI official in a letter addressed to the $260-billion social media giant, Facebook, harshly rebuking it for inundating TRAI with template responses from nearly 2 million users in support of the Facebook-promoted Free Basics. The senior official was apparently outraged at the manner in which Facebook used its brute “majoritarian” muscle to intimidate TRAI with overwhelming public opinion and asserted that if such tactics were accepted, “it would have dangerous ramifications for policy making in India”

Facebook CEO, Mark Zuckerberg (AP Photo/Jeff Chiu)

Readers will remember that last year a TRAI consultation paper on Net Neutrality was similarly responded to by net neutrality fundamentalists to demonstrate the ground swell of opinion in favour of a strict version of neutrality. At the time TRAI was indulgent of this innovative way of crowd sourcing opinion. This time around it is Facebook, not indigent activists, on the front foot; the leadership in TRAI has changed and it seems to be open season for charges and counter charges.

Zenophobia or pique?

The “establishment” and a large swathe of Indians, bred on traditional distrust of the “Ugly American”, are quick to take offence at the in-your-face lobbying. To be fair, Facebook clearly went over the top in pushing its case. Americans play hardball and have to be restrained when dealing with other cultures, like ours, where soft, behind-the-scenes contact achieves far more.

In the instant case, Facebook’s evangelical assertion that Free Basics is all about giving free access to the “poor” lacks credibility. Free Basics is a process innovation to improve business for Facebook and the telecommunication service provider (TSP), which provides the access. But isn’t that what all successful businesses are supposed to do. Why else would you invest in them?

TRAI has developed a solid reputation for being a savvy, growth-oriented regulator. The recent outburst is quite out of sync with its image and one hopes that it remains an outlier.

The case against free access “walled gardens”

Now, on to the substance of the matter. The case against “walled gardens” like Free Basics is built around two reasons.

First, in a price-sensitive market like India, a freebie is habit forming – like reading a free newspaper which provides selective news. But it is insulting to readers to assume that they cannot see that they are getting only limited stuff. For getting a child married, they are unlikely to use the freebie and instead insert an advertisement in a popular daily, if they can afford to do so.

The second argument is that TSPs are likely to favour content providers who pay them in return for free access and shun or disadvantage others who do not. This discriminates against start-ups which do not have the financial muscle to reimburse the TSP for free access. Thereby innovation itself will be stifled, like great art which remains undiscovered because the big galleries will only stock established artists.

These are powerful concerns in an ecosystem which has grown around unhindered and near real time access to innovation via the internet.

Strict net neutrality imposes unnecessary costs on the final user of the net and sharply constrains assess in poor countries which walled gardens can help breach   

There are three counter arguments why fears that innovation will be stifled by walled gardens.

First, internet-based content is a growing market-especially in India. Only 25 per cent of Wi-Fi subscribers in India access it via a mobile. Less than a 100 million people in India have a 3G or a 4G enabled handset (one of every twelve persons). This illustrates that the potential for new business via new and better content providers is virtually unlimited.

Network_neutrality_poster_symbol

Second, creating content is a highly competitive business like tailoring. If your trousers don’t fit, you are unlikely to order repeats. Similarly, if the content on Free Basics fails to keep up with content in the same space available elsewhere, you will switch your TSP or opt out of Free Basics. If enough apps on Free Basics are duds, it will eventually negatively impact Facebook itself, as users will either migrate to another “free walled garden”. Even if walled gardens are habit forming, they will compete with each other, possibly even on the same TSP network.

Third, the IT ecosystem automatically filters out non performers. The TSP needs data traffic to make its returns. Content providers need eyeballs for successive rounds of funding or they are forced to shut shop, merge or sell out.  This is not an ecosystem which is kind to those who are not on-top.

If the concern is to ensure voice for minorities, there is nothing to stop a walled garden from coming up specifically targeted at socially important, but fringe, groups – the lonely blogger writing on about the rights of the Rohingyas; social activists raging against growing inequality and other such laudable causes. There is nothing to stop a government-supported entity from launching a free wall where anyone can post and to which access is free. This has a parallel in public service broadcasting. Facebook’s social objectives may be doubtful. But surely non-state actors can fill that breach.

Light touch regulation requires nerves of steel and a deep resolve to not be influenced, either by public opinion or ideology. It also requires technical expertise and industry experience to drill down from motherhood concepts like “net neutrality” and contextualize its application to the market and the regulated entities. So long as the regulator remains neutral, the net is safe.

Net Neutrality can be breached if it is in national interest; does not result in dominant monopoly and is the outcome of technical or business innovation. Let’s not hang our hat by outdated ideological shibboleths. Sometimes majoritarian opinion is worth considering even if it comes via an industry biggie.

Adapted from the authors’ article in Swarajyamag http://swarajyamag.com/biz/trais-misplaced-rage-against-facebook/

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