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Part III: In this three part series (Parts I & II here), we take a look at the TRAI’s ruling on differential pricing in India. Yesterday, TRAI, India’s telecom and internet regulator, prohibited discriminatory tariffs for data services under the Telecom Regulatory Authority of India Act, 1997 (24 of 1997). Here are the key takeaways of the paper (pdf):

TRAI’s understanding of the issues it raised:

– A regulatory response on differential pricing should be based on a sound understanding of the basic architecture of the internet. Proposed changes must be seen in the context which needs to preserve the architecture of the internet.

Key relevant features include:

Minimum intervention principle: Intelligence should be located only at the ends of the system. Communication protocols (pipes through which info flows) should be simple and general. This allows a network that is transparent to the host application communication and provide a general, application agnostic transport service.

Adoption of universal network protocols: Use of open protocols developed collaboratively has enabled private networks to communicate with each other through standard packets and flow rate. This is what led to today’s decentralised internet architecture.

Transit and peering arrangements: Service providers represent only one edge of the physical infrastructure which enables data packet transmission.

Other governing principles include heterogeneity support; robustness and adaptability; unambiguous addressing; loose coupling; simplicity; connectionless packet switching and distributed adaptive routing; network of collaborating networks (interconnection via gateways which focused at the connectivity functionality).

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– Unlike traditional markets where consumers and producers are differentiated, on the internet, users are also content producers (ex: social media websites)

– The global internet comprises an amalgamation of networks that share a common addressing and routing system, which allows all networks to interconnect with each other directly or indirectly. Every service provider is dependent on other networks, and every packet of data, regardless of its nature is routed through multiple networks.

– A particular TSP offering data services does not control the internet infrastructure in its entirety, it is dependent on several other networks to facilitate this task. Allowing a TSP to charge differentially for data that it cannot process alone can compromise the entire internet architecture. The openness of the internet will be altered if TSPs across multiple tiers are allowed to do this.

Allowing service providers to define the nature of access, in India, where a majority of the population is not connected to the internet as yet, will be equal to allowing them to shape the internet experience of these users. This can be risky in the long term, since the knowledge and outlook of those users would be shaped only by info made available through select offerings.

The TRAI notes that if affordability of access is a cause for exclusion, how will the same users migrate to the open internet if they do not have the resources to do so on the first place?

– Stakeholders pointed that the anti-competitive effects of differential pricing will create an uneven playing field among content and service providers: large, well established content and service providers will find themselves in a stronger bargaining position as compared to new or smaller businesses. This will create significant entry barriers and harm competition and innovation, which can be magnified if there’s a conflict of interest in the service provider’s role as a service provider as well as a participant in a vertical market in competition with other content providers.

– Some stakeholders said that users will benefit from provision of free services, allow service providers to offer volume based discounts on popular apps through content specific data packs and enhance user choice by enabling them to choose suitable data services.

– Information asymmetry between service providers and users does not let users make an informed decision. Information asymmetry cannot be solved through disclosure or transparency requirements, since users may not be a position to understand the presented info.

– Stakeholders cited economic theory where the value of a network goes up as the number of people signing up on it increases.

Allowing keepers of the infrastructure to differentiate on the basis of content imposes negative ‘externalities’ on the rest of the network. The internet is a fluid and dynamic space where a user can be a simple subscriber and content provider.

– The ISP License Agreement states that the users must get access to all content without any restriction, excepting that content restricted by the licensor or under law. Price based discrimination is a restriction on accessing all content and change the consumer’s online behaviour. This will result in distortion of consumer choice and the the way in which people see the internet.

– Under Telecommunication Tariff Order, 1999, service providers are prohibited from discriminating between subscribers of the same class. Any classification of subscribers should not be arbitrary.

– Differential tariff for telecom services is not prohibited, but certain differential tariffs are discriminatory.

Allowing citizens the benefit of plurality of views and a range of opinions on all public issues is an essential component of the right to free speech. This includes the right to express oneself as well as the right to receive information. Both these elements are critical to the usage of the internet. TRAI says that the use of the internet should advance free speech by ensuring plurality and diversity of views, opinions and ideas.

– If differential pricing is allowed, it will not be possible to quantify, measure or remedy its consequences in the short to medium term.

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Why ex-ante bar ruling on differential pricing instead of a case by case basis:

– While the case by case approach may seem reasonable, it creates substantial social costs, fails to provide much needed certainty to the industry participants and in the absence of clear rules, lets service providers refrain from deploying network technology. The TRAI will also have to invest a lot of time and resources for investigating each case, while end users, low cost innovators, startups, nonprofits will end up being affected.

– Regulation for India must be India specific and jurisdictions from across the globe should be used only in formulating an informed strategy. As of now, we have to deal with increasing internet usage and penetration, foster competition, allow startups to flourish and uphold the law.

– Based on these, the TRAI rules that TSPs are prohibited from offering differential tariffs based on content, service, application or other data a user accesses or transmits on the internet. Tariffs for data services also cannot vary on the basis of website, application, platform or type of content being accessed.

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Disclosures: MediaNama has taken a strong position in favor of Net Neutrality and against price discrimination; Founder and editor of Medianama Nikhil Pahwa is a volunteer with the SaveTheInternet coalition.