The One-Sided Discourse On Net Neutrality!

The One-Sided Discourse On Net Neutrality!

by Muthuraman - Apr 17, 2015 05:40 PM +05:30 IST
The One-Sided Discourse On Net Neutrality!

Five myths about net-neutrality and why you don’t have to take them seriously!

If you listen to the current discourse in India on Net Neutrality (NN), especially if you are new to the subject, I won’t blame you if you conclude NN is the next best thing to happen to mankind after sliced bread! Fear mongering of its worst kind has been unleashed on gullible audience that the absence of net neutrality will thwart innovation, kill entrepreneurship, curtail freedom of expression, affect investment in technology and more, I am surprised someone has not yet blamed global warming due to absence of NN.

There are two contentious issues on the subject of NN viz.

– Can the Internet Service Providers (ISPs) levy specific charge on its customers for accessing certain Over-the-Top (OTT) services / applications such as Skype and Whatsapp?

– Can the ISPs provide differential speed of access to different websites / applications and thereby discriminate for/against certain websites?

Proponents of NN often conflate these issues to create straw man arguments. Let us address these two issues first, before taking on the specious arguments put forward to justify NN and in effect, encourage government intervention in the pricing strategies of ISPs.

Can ISPs levy specific charge on its customers for accessing specific sites?

First point to note here is, ISP industry is an intensely competitive market, and multiple players compete against each other thereby bringing prices down prices remarkably over the years. Now, in such a scenario, why should the government, or anyone else for that matter, dictate terms on the pricing strategy between a willing consumer and a willing service provider? The very question itself is an assault on the principles of free market! If the accusation is that the ISPs will cartelise, then the same can happen with or without Net Neutrality; that discussion should be taken elsewhere, not to fight for or against NN.

The other question that arises is “isn’t Internet a public utility (like air and water) and hence Govt has a role to play in ensuring fair market practices?” Definitely yes! But why presume guilt on part of ISPs? If there is any unfair practice (such as throttling a competitor website), then take stringent punitive action. I would even go to the extent of saying that the Govt. can make it mandatory for every ISP to offer, as one of their plans, a universal access plan without discrimination. But that should NOT stop them from offering differentiated pricing schemes to the consumers. The consumer is king – let him decide what he or she wants to choose!

Can ISPs provide differential speed of access?

Addressing this issue on first principles, if I have signed up for a given speed say 2 MBps, the ISP has no business to restrict my speed of access to any website below this speed (i.e no negative discrimination). However, if the ISP allows me to access few websites or applications at a faster speed than what I signed up for (i.e. positive discrimination, for e.g. allowing me to access Flipkart at 10 MBps when I signed up for 2 MBps, by taking money from Flipkart), why should that be a problem for anyone? Why should Govt. or anyone else interfere in a commercial service provided in a competitive industry? Is the Govt interfering when Flipkart offers to ship my products for free? Obviously they are paying the courier company to ship it, right? Likewise, if they pay an ISP to give them free and/or faster access to their website, why should anyone get their knickers in a twist?

Now to bust a few myths and ridiculous analogies on NN.

Myth 1

The ISP is like an Air Traffic Controller. They can’t take money from airlines and decide who should land first! (I am not making this up!  See for yourself here)

Reality check: Fails the basic test of analogy.  The airline does not get to choose which ATC they can use to land in an airport! But as a consumer, I get to choose my ISP!

Myth 2

The much talked about AIB explains NN by comparing this with entry to a theme park and then being asked to pay for slide and swing, and higher for faster swing!

Reality check: If I had my way, I won’t go to that Amusement park the next time, and select the one that I think provides me fair value for the money that I pay to enter! Simple, isn’t it?

Myth 3

Data charges of Telecom Companies are growing Quarter on Quarter. So they can’t complain that they are losing money due to Skype and Whatsapp!

Reality check: What amount of money that the Telcos make should NOT be the reason for tighter government control on pricing strategies of an ISP!  This is the lingering effect of decades of socialism which views making profits as a sin! Any government control in a free market is a distortion that should be resisted by anyone who has faith in the principles of free markets.

Myth 4

Internet access is like a highway and ISPs charge toll to enter. They can’t decide who should drive at what speed.

Reality check: As said earlier, the ISP cannot choke any site from accessing at a speed less than what the user signed up for. But if they offer few vehicles a faster lane for additional fee (without choking others), why should that be a problem?  Unlike a highway with limited width of road, broadband  pipes are really huge and speed of access is NOT a zero sum game.

More importantly, there are 10 choices of highways of same length to reach the same destination and I can choose anyone that suits me!

Myth 5

Unless NN is introduced through regulation, innovation and entrepreneurship will be thwarted as the biggies will pay their way through to kill start-ups

Reality Check: Exactly opposite is true! The “free SIM” plan offered by Telcos in India helped them reach millions of masses who otherwise could not have opted for mobile services. Similarly if someone allows data-free packs to access prominent sites, internet use among public at large could improve dramatically! But then the NN supporters don’t want to allow ISPs to offer data-free packs!

There are several right comparisons to make – airlines, electric utilities, Cable TV and courier companies!

Electric utilities charge different consumer segments different prices for essentially the same product that is offered – domestic consumers, commercial consumers, agricultural consumers and industrial consumers. So, if I have a beauty parlour in ground floor and my residence in first floor, I will be paying commercial rates for one, which is almost 30-40% higher than the other, both being in the same premises! Some even charge differential tariffs for consumption during day and night.

A courier firm is free to charge whatever price it chooses for any packet, depending on the destination, size of package, weight of package, how fast u want it delivered… what the heck, even by the material that I use for the packing!

An airline charges 100 different prices for 100 seats in the same aircraft which takes 100 passengers from same origin to same destination, at the same speed, mind you!

Cable TV(DTH) providers are again a good example of differential pricing based on consumer needs. I can opt for only free channels, free + paid channels of my choice, free + paid + HD channels, and higher for recording services! There are free-to-air channels which pay Cable TV operators carriage fees to let the DTH operator carry them (akin to Twitter paying ISPs to give data-free access); this helps them improve viewership and thereby garner higher advertising rates!

If so many other industries are free to charge as they please, why can’t an ISP be allowed to do that? Is the faith on free markets so flimsy that the chorus would want few bureaucrats and foul-mouthed jokers to decide on the pricing decision between two willing parties?

To conclude, Net Neutrality is another bogus socialist utopia! What next? All ISPs should offer same speed? And charge the same? And then everyone will live happily ever after? Today, the internet access charges vary based on

– My city

– My speed choice

– My data limit choice

– My time period of commitment

– My type of connection (pre-paid or post paid)

– My time of access (Night time data charges are lower in many packages)

– My combination (voice + data or data alone)

So what is wrong if it varies based on the sites and applications that I access? I wish I could run a small experiment! All ISPs should offer a package – net neutrality pack at Rs. 1000 per month, but non-neutral package of ISP’s choice at Rs. 300 per month! We will see how many of these noble minded souls would still support net neutrality then!

Note: This is a LIVE post. Readers are welcome to pose questions to the author in the “comments” section below. The post will be updated with the the questions and the respective responses of the author. 

Comments & Author Responses

1. Euler comments:

“…The problem is where there is payment by the customer for using the same lines (information from customer to ISP uses the same network which other non paying customers use). This is where there may be a possibility that other users suffer (throttling or slowing down), as bandwidth may be limited….”

“… In limited bandwidth scenarios, preferential data access necessarily means others suffer. This is basic physics/electrical engineering.   …The analogy here is indeed VIP cars in traffic. Do we want to stop everyone’s traffic (at the extreme) and allow VIP cars to go through simply because VIP pays more for it?”

Author:  I have made it amply clear that any ISP that is not providing the user the contracted speed is in breach of his contract and should be hauled up. So, the zero sum argument doesn’t hold true here at all.  If bandwidth constraint is accepted, then any new customer acquired by an ISP would throttle every existing customer! So the ISP should be prevented from selling new connections? If an ISP oversells his bandwidth and chokes everyone in the process, every consumer has the right to take the complaint to TRAI or consumer court. This problem is not endemic to NN debate at all!

Free market principles are not absolute. Market failures occur routinely and it is completely and always up to the government to fix the fall-outs.

Perfectly true and acceptable in a generic sense. But why assume ab initio that the free market principles will fail in this scenario? As and when it fails, it should be fixed!

2. Mukunthan Iyer asks:

…Airtel wanted to introduce differential tariffs for internet usage, when in particular, if the users are using Skype or other VoIP services. This plainly appeared to be their interests in Voice and video mobile calls, which have started taking a dip due to the former. Hence, in plain simple terms, Airtel wants the users to pay for the opportunity it lost, when the user chose a better invention of science. Is this what would continue, if the neutrality game opens? Is this neutrality in any real sense?

Response: Two parts to this answer: first, the telecom market is a competitive market. If one charges for accessing specific applications which is “exorbitant”, another provider would undercut to bring in discipline. The key point is the ISP should have the rights to discriminate as he chooses and price his service. The consumer should have the option to select any provider of his choice.

Secondly, a telecom voice call provider has certain protocols to maintain, including KYC (Know Your Customer) details of every SIM card which has to be collected, maintained and retrievable at short notice. A VOIP provider is not required to do so, as he piggy-backs on the KYC of the ISP who maintains the KYC. Either the application provider (e.g. Skype) or the users of such application  (i.e. you and me) have to pay for this additional service, which a static website like Google does not warrant? So there is certain logic to why ISPs are clamouring for charging such OTT services.  But I am not looking at it from ISP’s perspective on whether he recovers his cost or not. If he is not competitive, I would welcome a few guys to wind up!

3. Akilan R comments:

“…. I wonder which universe he lives in. Users in India almost never get promised speeds & technically also ISPs can throttle individual sites:…

Muthuraman: Users not getting promised speed is a different fight altogether and have no bearing on Net Neutrality at all.  And I have made it amply clear that I am strongly against  “throttling of any specific website” (i.e. negative discrimination).

4. shreesha asks:

“… if you drill down why NN should be followed they will say ultimately, Internet’s basic principle is no discrimination of data and it should be treated as bytes. Who the hell made this principle? If an electrical engineer association says, electricity shall be treated as only moving charges and shall not be differentiated based on whether it runs a mixer or a turbine or a street light, will you NN bhakts fight for his cause???”

Muthuraman: Very Well Said!

5. Amit Prabhu says

… I think the real confusion is between (a) ISPs charging more to access certain sites (like whatsApp that kill their SMS business) (b) ISPs slowing down speed of some sites in favour of others and (c) ISPs providing access to certain sites free of cost.

Response: On Point 2, I agree and have made it clear.. No one has any business to slow down other sites! On Point 1,  my point is the ISPs should have the freedom to charge what they like, whether for all sites and applications or specific applications! As a consumer, you are at liberty to choose if you want to access certain applications! And compare among other ISPs and decide the best for yourself! Isn’t that the spirit of free markets?

6. Minus-one asks

Today, ISPs provide a ‘max speeds of up to x Mbps’ and not a lower limit. ISPs WILL NOT BE able to guarantee a minimum speed, as that is bound by technology. While what you propose is theoretically possible, its practically infeasible.”

Answer: This is not an argument endemic to Net Neutrality. Congestion can happen even with addition of more users (with or without NN).  Discriminatory pricing is not going to any way add or subtract this problem.

Today the choices are extremely limited by geographical location. I am sure, in most of the locations there does it exist the best ISP in the area because of reliably having infrastructure.

If this is the case, the case against NN is stronger! We should encourage more ISPs and not tie their hands and legs and ask them to swim, right?

Take petrol/diesel for eg. Is it differential pricing for cars/bikes, or how much distance they go? Govt has deregulated the prices, but all players have a common price. IS NOT THAT A FREE MARKET?

Of course NOT, my friend! Petrol/Diesel is exactly opposite of a free market!

7.  jayram wonders

Electric utilities charge different consumer segments different prices” <– So do ISPs today. Different market segments offered different pricing is not new phenomenon. Customers in same market segment being discriminated based on usage is wrong.”

I had quoted the airline example where in same market segment,  customers are “discriminated”. Who are we to say what is “wrong” and “right” as long as the pricing is made known upfront to the consumer, and he buys it with his eyes wide open?   The basic principle of free markets warrants that the provider has unfettered rights to charge what he chooses, and the user similarly has his rights to choose any service provider!

8. Boogie asks

…it will kill innovation and start-ups…

9. gregorylent dares

… go start a company to compete with flipkart, then come back and write the article again

Answer: This is the biggest fictitious fear mongering by the NN supporters without any basis! First of all, the so called “discrimination” is only for OTT services, not for all and sundry websites.  Second, if you are talking of Flipkarts and Amazons of the world threatening to kill start-ups, paying internet access charges is a micro miniscule part of the purchase costs that they may be subsidising!

There are so many other costs which Flipkarts of the world can drop to make new entrants uncompetitive!   Third, there is a real possibility of absence of NN encouraging innovation! ISPs and web service providers offering low/free data charges to bottom of pyramid customers to encourage internet penetration can itself spur a chain of innovation!

10. Jayram asks

“… Just like courier can charge for destination, size of package, weight of package, how fast u want it delivered, even today ISP’s charge differentially based on these parameters. Without Net Neutrality it will be like a courier can charge Rs 50/ 100 g for greeting cards & Rs 100 /100g for Legal Papers & Rs 200/100g for love letters while all other parameters like size/weight/urgency remaining constant.”

Sadly my friend, the scenario you projected is the reality!  Today, newspapers of same weight as love letters are carried at much lower rates than the latter! And fellow commentator Krish Sriram has explained it very well!

Krish Sriram chips-inYour analogy, its already in practice. On festival days SMS charges are more or no free SMS even if you had already paid for free pack.Same with courier or post.Differential pricing exist. SMS to any reality programs or live telecast on channels are charged higher than normal phone to phone. Tatkal and Super Tatkal is one such positive discrimination. …

11. Kamalesh Avadhani  wonders

…when net neutrality is given in the hands of ISPs, and add it to the possibility of cartels,
you have a recipe of crony capitalism, this is not free market economics.

Answer: Cartelisation is a different problem altogether, and that can happen with or without Net Neutrality.  A classic case of straw man arguments!  Cartelisation and crony capitalisation much be fought vigorously, in any case! Don’t bring in net neutrality into that fight!

… Assume they charge differently for domestic connection based on how you use the electricity. For example, if the charge is higher if you use it for washing machines and fridges but low for others and they allow equipment manufacturers to subsidize it (positive discrimination). (This is what Airtel Zero and are trying to do.) How can a new equipment manufacturer compete?

A new equipment manufacturer would compete the same way he competes when the existing player drops prices of the product itself! How is it different if the product price is dropped, or internet charge to access the product is subsidised?

12. Kumar Basava asks

Internet basic principle works on hyper linking .. which means people can move from one server to another server at a click. Net neutrality ends this basic principle of free movement.”

How on earth would absence of NN affect free movement? We are talking of discriminatory pricing only for OTT services here!  Does the “hyper linking principle of internet” behave differently if I access it using a 10 MBps line from office, and a 2 MBps line from home?!

(last updated 18th April 2015, 13:05 hrs)

N Muthuraman runs Riverbridge, a boutique investment banking firm. He was formerly the director of ratings at CRISIL, India’s premier ratings firm
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