I’ve been out of country for close to a month now, so haven’t really been following India news too closely (apart from via social media). But from my (biased 🙂 ) sources I understand that TRAI has put out a discussion paper in which they want to permit telecom companies to charge you based on the service that you use, thus violating Net Neutrality.
Now I’m yet to take a stand on this (this argument by Tim Harford against Net Neutrality is rather compelling, making me believe that well implemented competition regulations can mean we can make do without Net Neutrality, but I haven’t given it too much thought yet), but I have an idea as to why the likes of Google and Facebook, which in the past and in other geographies have come out strongly in favour of Net Neutrality, are okay with Net Neutrality violation in India.
The basic issue in India is with “over the top” services such as WhatsApp and Viber which the likes of Airtel and Vodafone see as a threat for it competes with their rather lucrative voice and SMS business. I’ve mentioned in the past that there’s a quality issue here which the telecom companies can differentiate on (packet switching doesn’t work that well for voice), but given costs it is hard to make a compelling case for using circuit switching for international calls.
So the likes of Airtel and Vodafone are threatened by such services and want to charge users more for using WhatsApp and Viber compared to other applications. Net Neutrality supporters, who argue that internet infrastructure should just be a set of neutral pipes (rather than a “two-sided platform”, as Harford argues), argue that this is unfair, and that Airtel and Vodafone are exploiting their positions as gatekeepers (literally) to defend their own related business.
Coming to the point of this post, entities such as Google and Facebook are coming out on the “wrong” side of the net neutrality debate here in India, arguing that internet companies should be looked at as two-sided platform markets rather than neutral pipes (resisted the urge to use the phrase “information superhighway” there!). Considering that they’re proponents of Net Neutrality elsewhere, why are they taking this stance in India?
Assuming that final regulations come out in favour of net neutrality (treating internet as infrastructure, and not a platform), how should the likes of Airtel and Vodafone react? Clearly their data business is cannibalising their voice business, so they should logically increase their prices for data plans (no brainer). Given that they will not be allowed (in this situation) to charge differential rates based on the service, they will have to uniformly jack up data rates.
This can be troublesome for Google and Facebook on two counts. Firstly, the telecom providers may not get their pricing right, and rather than having a ramp (charging heavy users heavily, since only such people will be using WhatsApp or Viber), they might increase data rates across the board. This will result in a drop in mobile internet penetration (one reason it’s so high now is that it’s cheap), and considering that Google and Facebook are services that pretty much every who uses the internet in India uses, it will result in loss of user base, traffic and revenue (possibly) for them.
The second problem is that even if telecom operators get their pricing right (maintain current pricing for basic plans, but jack up rates for high data usage) it spells trouble for Google and Facebook. One of Google’s widely used services is the video streaming application Youtube, and Youtube consumes high bandwidth. Facebook is getting into native video in a big way, and it is estimated that it might be more successful than Youtube in terms of advertising. And with correct internet pricing under net neutrality, demand for services such as Youtube and Facebook Video will go down significantly, which is not good for those services.
So the simple answer is that the reason Google and Facebook are coming out against Net Neutrality is that they are coming out on the right side of the new proposed (anti neutrality) regulations. Like WhatsApp and Viber, they too are high bandwidth applications, but unlike WhatsApp or Viber they don’t compete directly with the owners of the pipes. Thus, they want providers to have the ability to impose differential pricing, since that will mean that subscribers can access their content for cheaper, and this allows them to make more advertising revenues.
In my view (again note that I’m yet to take a stand on this net neutrality business), this move by Google and Facebook to support the anti-neutrality regulations is extremely short-sighted since it can hit them back at a later point in time. There is no guarantee that in the long term their services will not compete with that of telecom providers (Hangouts? Facebook voice calling?) and the regulations that they are currently supporting can come back to hit them at a later point in time.
It seems that Google and Facebook are working on an assumption that there will not be other high-bandwidth applications that will compete less with pipe-owners (telecom operators) than them (Google & Facebook). They are very likely to be in for a surprise, and end up as the cranes in this Panchatantra story.