Can net neutrality survive market forces?

Enforcing and regulating net neutrality is not a straightforward task. Varying capacities to understand and adapt to technological changes make net neutrality a complex ecosystem to enforce

Recently, the Department of Telecoms tried to ease nerves by saying there was little concern about telecom companies compromising net neutrality norms. The DoT’s assurance, as reported by the Economic Times on November 6, comes at a time when telecoms called on the government to implement a revenue-sharing model with over-the-top (OTT) service providers. This has once again put the spotlight on the debate surrounding net neutrality.

To understand the ongoing discussion about net neutrality and the call for revenue sharing, one must realise that the Indian Internet market is dominated by telecom service providers (TSPs) as many subscribers and smartphone users rely on them for network access. The TSPs justify their request for revenue sharing with OTT platforms by highlighting their substantial investments in infrastructure.

The landscape has also evolved due to changing patterns in data usage, a surge in mobile Internet users since the introduction of 4G, and the availability of more affordable smartphones. The introduction of OTT platforms has fundamentally transformed the way people experience Internet usage, further shaping the ongoing conversation around net neutrality and revenue sharing.

A consolidated market

Globally, and even within India, numerous cases have been filed against companies like Alphabet and Meta for engaging in anti-competitive practices. While net neutrality is actively promoted by integrating it into the concept of a unified license, there are ongoing concerns about the gatekeeping power of tech giants (like Google) and their algorithmic manipulations. This highlights the broader and philosophical challenges of realising net neutrality.

Enforcing and regulating net neutrality is not a straightforward task due to differing approaches among countries, and their varying capacities to understand and adapt to technological changes. Some countries view tech companies as revenue-generation models, while others consider them as part of a public infrastructure with a cost-sharing model.

In the Indian context, spectrum auctions are a substantial revenue source for the government. The TSPs pay a considerable price for acquiring spectrum, in addition to license fees, taxes, and substantial investments in building infrastructure. The landscape in India underwent a significant transformation in 2012 when a court ruling led to the cancellation of hundreds of licenses, consolidating the market, and reducing the number of dominant players holding the majority share.

Today, the telecom market is consolidated with players such as Jio, Airtel, Vodafone, BSNL, and MTNL occupying the most market shares. As of August, Jio and Airtel are expected to jointly corner 83 per cent of the revenue market share. The rise of Reliance Jio and the reduction in the total number of Internet service providers has raised concerns regarding the market moving towards a duopoly.

Advantage of competition

A stronger and more competitive market might have obviated the necessity for specific net neutrality regulation. An excellent case in point is Australia where the principle of net neutrality is not explicitly codified in any regulation. However, the Australian telecommunications market is characterised by robust competition. It boasts a relatively high number of 63 TSPs. This extensive range of options available to consumers acts as a deterrent against any TSP attempting to restrict, prioritise, or filter, as such actions could result in unfavourable commercial consequences. Additionally, regulations mandate that the TSPs maintain transparency in their policies.

Why is such a competitive landscape missing in India? At 58 per cent, the government levies (including spectrum charges, licensing fees, and GST) on the TSPs are the highest globally. This results in increased costs of operations making it hard for many companies to stay afloat; ultimately only a few survive. Additionally, the TSPs also navigate complex licensing and regulatory requirements, which could be both time-consuming and costly. Over the years, this has led to significant consolidation, reducing the number of major players in the market.

The resultant dominance of a few players leads to concerns about the TSPs favouring certain content or services over others, which is at the heart of the net neutrality debate. Fostering competition in the market addresses a lot of these concerns. It gives consumers more options to select the TSP that aligns with their specific preferences, based on service quality, pricing, customer support, or adherence to net neutrality. They can switch providers if they perceive any unfair practices, thereby putting market pressure on the TSPs to respect net neutrality and maintain an open and neutral Internet. Such a system will help the TSPs stay competitive, without compromising on net neutrality.

The way ahead

As Internet usage patterns change, the TSPs would seek additional revenue to expand and enhance their networks. Engaging with the OTT platforms is only the beginning of this exercise. While the arguments for and against net neutrality remain highly contentious, both the TSPs and data users must explore new market models for sharing and investing in services and infrastructure. Policies in this evolving landscape should be neutral, and safeguard the interests of consumers, data content providers, and those responsible for delivering this content.

The TSPs should move beyond their current bundled packages and adopt more transparent revenue-sharing models to protect consumer rights. One possible approach could involve creating a ‘playstore model’ where significant data players offer value-added services or specific content that consumers can subscribe to.

Revenue-sharing arrangements can be established between the carrier and the content provider. The TSPs and Internet Service Providers (ISPs) could form consortiums to develop these stores in a competent market model. Additionally, implementing differential pricing during peak usage times could incentivise content providers to use less bandwidth for streaming services during these hours.

In the context of net neutrality, transparency, and accountability of ISPs/TSPs are paramount. The current system lacks transparency in various aspects, and a more effective approach involves fostering competition, providing choices, and encouraging negotiations among all stakeholders. This process should aim to strike a balance that upholds the fundamental principles of openness, fairness, and competition. It's important to recognise that policies in this realm should remain dynamic, subject to revision, and adaptation based on evolving circumstances and lessons learned from the changing landscape.

(D Dhanuraj is Chairman, and Nissy Solomon is Senior Research Associate, Centre for Public Policy Research, Kochi.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.