Companies like Airtel have a right to make profits.

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India's Argument Against Net Neutrality

Dhiraj Nayyar is a journalist in New Delhi. Trained as an economist, he has worked at the Financial Express, India Today and Firstpost.com. He is editor of "Surviving the Storm: India and the Global Financial Crisis."
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Does India present the world’s best argument against net neutrality? Possibly. In a matter of weeks, the country's telecom regulator will decide whether telecom companies -- which also happen to be India's major Internet service providers -- will be allowed to charge different prices for differential use of data over the Internet. Activists are outraged by a recent consultation paper floated by regulators, which they say is biased against net neutrality -- the principle that all data should be treated equally on the Internet. They’re equally outraged by a plan from telecom major Airtel -- called Airtel Zero -- that offers subscribers free access to certain apps like the e-commerce platform Flipkart, which pays Airtel for the privilege.

In this case, the activists'  outrage may be off-base. India’s policy framework for telecom and the Internet argues for a relaxation of strict net neutrality, even as regulators keep a close eye on anti-competitive practices.

The end goal of policymakers and activists should be the same: enabling cheap and quality Internet access to the maximum number of Indians. Given the low penetration of broadband and computers, the only way to extend the reach of Internet widely is through telecom companies: Some 800 million Indians own mobile phones.

QuickTake Net Neutrality

To this point, India has benefited greatly from one of the world’s most vibrant and competitive telecom sectors, made up predominantly of private companies. Those corporations have a right to make profits. Yet government policy has created a tough environment for these players. The state auctions off only limited amounts of telecom spectrum, thus artificially creating scarcity and forcing companies to pay huge amounts to acquire spectrum (more than peers in advanced economies). In addition to paying taxes, corporations must contribute 5 percent of their revenues to a Universal Service Obligation fund to finance rural broadband. A brutally competitive sector forces down tariffs well below advanced-economy levels, particularly for voice services.

Under the circumstances, telecom companies have a compelling argument for charging differently for different bandwidth use. For example, it makes perfect sense to allow them to charge extra for voice over Internet protocol (VoIP) services, which clog up a lot of bandwidth. These services are hardly used by India’s poor and in fact end up slowing down access to the basic services that less economically-privileged citizens need more. This isn’t simply a matter of profitability; the question is how to maximize the efficiency of limited bandwidth. Remember also that unlike in advanced economies, India still needs to build much more telecom and Internet infrastructure. Private companies can only make those investments if they earn a decent profit.

That said, regulation is necessary to prevent collusive and anti-competitive practices. By charging to give some apps and platforms priority, Airtel Zero’s approach is a grey area. Should one e-commerce platform be allowed to pay Airtel effectively to gain an advantage over competitors, who might not be able to afford the same fees? This isn’t quite the same as charging higher prices for services that use more bandwidth. This is discriminating within a bandwidth category.

Airlines charge different fares for seats on the same plane, but there’s rarely serious discriminatory pricing within a category (whether economy, business or first class). Similarly, toll roads can operate parallel to free highways; those who want to travel faster can simply fork over the extra money. But should one user of the toll road -- say, a private cab company -- be allowed to pay more and crowd out its competitors from using the same highway? That’s effectively what Flipkart is doing with Airtel Zero.

India’s debate on net neutrality is in danger of confusing anti-competitive practices with legitimate price discrimination. There’s a need to separate the two -- and to appreciate the value of competition. No other telecom company has aped Airtel Zero so far. So consumers can always migrate to another company if they don’t want to be limited in their choice of e-commerce platforms. India’s government doesn’t need to support net neutrality in all circumstances. But regulators should stand up for competition and crack down on collusion.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Dhiraj Nayyar at dhiraj.nayyar@gmail.com

To contact the editor on this story:
Nisid Hajari at nhajari@bloomberg.net