Net Neutrality is not necessarily a good idea

As someone who relies on internet to earn daily bread and porn; net neutrality is an issue that is close to my heart. It is painful to see the crowd jumping “save the internet” bandwagon without realizing they might end up breaking the internet permanently.

You can not have any rights at the expense of others.

Do consumers have a right to demand that they receive unrestricted internet access ? Of course they do. It is not very different than asking for more fuel efficient cars or extra ketchup with samosa.

However what is totally unacceptable is that these consumers go to government to force all telcos to give unrestricted internet access. This is like asking government to make a law that all vehicles should give at least X km/liter mileage.

The only thing consumers could do is to switch to another telco which gives better internet access. In a highly competitive telecom market I think it will be impossible for any business to succeed without catering to even a small % of it’s users needs.

Telecom companies own the spectrum which is a scarce resource. They have purchased it in competitive bidding. If I buy a prime real estate in a market and after I have paid the price if the government passes a law that prohibits me from using to for certain commercial activity that I originally intended it is both immoral, unwise and a form of government terrorism.

Government intervention is always a “strictly worse” option for almost everything else.

Petitioning government is a bad idea because in the name of regulation government might now enforce some arbitrary rules with arbitrary exceptions. As usual government might force the telcos for net neutrality with side clauses such as “Porn websites might be banned”. Very likely the inspector raj will break the internet permanent the way it has broken several other sectors like labor intensive industries, manufacturing, public transport and education.

But is restricted access to internet a bad idea in first place ?

I think this require fair bit of economic reasoning. A lot of people tend to think of their internet usage as “fixed usage” and then think a restricted access might mean more charges. For example if a user is currently spending Rs 200 per GB and using WhatsApp, FB and YouTube excessively, buying all three separate services might cost him Rs 50, Rs 100 and Rs 100 per month so he spends Rs 50 extra and loses freedom to access most other sites.

But people are not foolish. If Reliance is giving internet services as Rs 210 per GB, all Airtel customers will flock to Reliance. (This might sound unreasonable at anecdotal level but at scale even Rs 1 average increase in monthly bill means losing few thousand customers. Yahoo! observed that for each additional 50ms delay in page load they lost 1% of traffic. ).

The only ways Airtel can make more money here is by widening the net of its internet users. For example with Rs 50 for WhatsApp only data connection it might end up converting few million of its voice/text only customers into data users who otherwise were not willing to pay Rs 100 for 1GB.

Airtel’s gamble may or may not work but it is a bold move and certainly they have a right to try it out at their own expense. Others can simple move to Reliance, BSNL or whatever else.

This might be a game-changer for Indian audience which is known to be more price sensitive than quality sensitive and this might mean millions of poor Indian who otherwise do not use data service might now opt in for lower prices and without congesting the spectrum. This means bigger audience of internet advertising and e-commerce and that is why I am not surprised that Flipkart has joined hands with Airtel.

Expanding internet infrastructure

If telcos can derive more value from internet, it means the investment in internet infrastructure will go up. This will help internet penetration and eventually help many Indian start-ups gain more customers.

Will Telcos arm-twist internet companies ?

A truck will not pay toll on a bridge if the profits it will make through that trip do not exceed the cost of that toll. Theoretically if your internet usage is worth $X for you the telecom company can charge you X-1 and you will still use it.

However the only way we can force the telecom company to charge to much less than X is by introducing competition.

Airtel might give priority access to Flipkart and Facebook but it essentially make Reliance’s services look more useful at the same price. The only way Airtel can succeed is by ensuring the prices of its non-neutral internet service is significantly lower than other options for a given user.

As more apps and more services come up, Airtel will find it hard to maintain the value proposition of its plans. Either ways consumers win.

Understanding role of markets

The underlying principle we should not forget is that without any externality, markets tend to optimize resources much better than any one person/government can. What Airtel is doing is a fair game in a market perspective and it might actually end up using spectrum more optimally.

It is also worth noting that what Airtel is doing is nothing new. Blackberry services have always been “restrictive” you could use BES services (email only) alone for Rs 299 and unlimited internet for Rs 999. I used previous option because it saved me Rs 700. As a consumer I won.

If government had forced net neutrality the real plan that I could have gone for would have cost north of Rs 2000. Because airtel would have lost a lot of customers who could not afford any plan higher than Rs 299 making Rs 999 plan unprofitable too.

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