policy-1-cmn

The latest letter from the telecom lobby COAI challenging the Indian telecom regulator TRAI’s Net Neutrality (Discriminatory Pricing) regulation, appears to be merely a formality before they take the regulator to court. We’ve copied the letter below. This is the COAI’s second letter in less than a month (the first), and asks for the same thing as they did earlier, but the language hints towards some of the arguments they will use if and when they go to court. The telecom industry has been emboldened by the Supreme Court of India overturning the TRAI’s order on call drops, which in particular emphasised lack of evidence in formulating the regulation.

Here’s a point by point rebuttal of some of the points in the COAI’s letter to the TRAI:

1. On competition in the telecom space:

COAI says: “In a fiercely competitive market like ours we sincerely believe that it is probably counter-productive for TRAI to take the extremely harsh position of this Regulation.””Intense competition in the market,with 3 to 4 times the number of players as compared to global norms,has ensured that TSPs have always priced sensibly while keeping the customers in mind.”

MediaNama’s Take:
a. This is factually incorrect. The market in India is no longer fiercely competitive. As of March 2016, just three of 13 telecom operators – Airtel, Idea, Vodafone – had as much as 66% of the active customers, up from 64% in March 2015.

telecom-india-march-2016telecom-india-march-2015

The top four telecom operators have 76%. Over the past year, MTS has exited, selling to Reliance Communications, and Aircel has sold some of its circles to Airtel, and is in talks to sell the rest. Fact is, competition is declining, and the top three own most of the market. Do they compete? Well, they work together: they have joint ventures together, do 3G Intracircle roaming arrangements, where users from one can roam on anothers network if the other doesn’t have 3G. No wonder BSNL accused Airtel, Idea and Vodafone of forming a cartel. So the market isn’t fiercely competitive, though the COAI is duty bound to keep harping on this for regulatory support. Ignore the industry averages they give you: the COAI is probably using the sorry condition of the worst off telecom operators to benefit the top three. Airtel made Rs 1522 crore of Net Profit last quarter, in a three month period, while Idea made Rs 809 crore. For both the companies, profit is substantially higher.

airtel-financials idea-financials

2. On Pricing Innovation

COAI says: “We believe that the same could hamper the growth of all types of marketing and pricing innovations.” “Forced pricing around only one parameter i.e.in terms of Bytes (MB,GB etc) is not customer friendly. WE therefore believe that removal of pricing innovation and flexibility,through this regulation,will adversely impact the move towards the Vision of Digital India and will slow down the growth of new internet users.”

MediaNama’s take: We run a website. We don’t see how pricing access to our website differently is a “marketing or a pricing” innovation and helps us in any way. This merely allows telecom operators and ISPs to favor some websites over others, often in exchange for money, and allows them to become gatekeepers. Lets not forget what Uninor said:

“Selling Internet as rupees per MB is like selling air or train tickets as rupees per kilometre. What customers do with Internet is to use it for services like Facebook or Whatsapp.”

Uninor said this when they announced plans to offer Facebook at Rs 0.5 per hour and Rs. 1 for a day of Whatsapp. Cost for accessing the rest of the Internet was separate. Now who decides which websites are free? Who decides how much they’re charged? This disadvantages smaller providers and allows telecom operators to become gatekeepers. If the top 100 or 1000 websites are part of Airtel Zero, will users explore the rest of the web, which cannot come and do deals with Airtel? If each telecom operator has its own zero rating program, different operators will have users who are on different kinds of services. This takes away from the network effects that Net Neutrality allows.

3. But they’ve been permitted earlier:

COAI says: “Differential tariffs have been permitted for years now”

MediaNama’s take: This is lie. Just because the TRAI failed in its duty to prevent discriminatory pricing, doesn’t mean that it permitted it. In fact, if Discriminatory Pricing was permitted, then why did the telecom industry (read this and this) push the TRAI to do a consultation on discriminatory pricing and other Net Neutrality issues?

4. Evidence of harm:

COAI says: “Ex ante regulation works best when there is corroborating evidence of harm being done by TSPs.It is rather unfair of TRAI to have assumed on its own that differential pricing is equivalent of denying access of internet or any website to end consumers.”

“…and there is no direct or indirect evidence about any harm,which has been caused to anyone due to differential tariffs for data services being offered by the industry,In fact,there is probably ample evidence to show the good done by differential tariffs to expand the market. Thus,we are of the view that regulation is based on hypothetical assumptions rather than on corroborated evidence of discrimination.”

MediaNamas Take:
a. Harms of gatekeeping: As Network18 founder Raghav Bahl wrote last year, regulations which allowed cable operators to do control access made them gatekeepers, and their rent-seeking behavior was a major factors in his TV businesses becoming unsustainable. In fact, much of the TV industry suffers because DTH and Cable operators extort carriage fees from creators, and only allow users to select channels from a menu of their choosing. This is why some channels are available on some cable operators, but not others. Discriminatory pricing enables gatekeeping, and there is evidence of harm of gatekeeping. The TRAI ought to look at the Cable and DTH industry to ensure openness in carriage as well. We also don’t want

b. We have enough of a precedence in Mobile VAS: it was a tightly controlled access-to-content ecosystem, with only 10-15 players, instead of the millions on the Internet. It allowed telecom operators to play a gatekeeping role, and only allow a few to win. It suffered because of corruption of telecom officials, which led to fleecing of users. We don’t want a situation on the Internet where telecom operators pick winners and losers, and control what users get to access.

c. On the assumed good done by differential pricing: Among the selection of sites offered, Facebook and Facebook owned Whatsapp have dominated in terms of free data packs. Have we seen anyone try and compete with Facebook in India? They’re a monopoly in this market. However, if you’ve seen what’s happened in case of Whatsapp, Hike, WeChat and Line haven’t had that advantage of being offered as packs, or being zero rated.

d. On the need for evidence: When the pricing is discriminatory, and posits to benefit some versus the others, why do we have to wait for evidence of harm, especially since there is precedence?

e. Where’s the COAI’s data? Can all telecom operators release data on how many users they had on Whatsapp and Facebook packs? How many of them accessed the open web? Why is the industry being so opaque when they have more data than anyone else. Lastly, given that they are a vested interest, can we trust telecom operators on this data? Here’s the thing: if people were on packs and accessing the open Internet, then this is giving a competitive advantage to the sites on those packs. The packs aren’t “Internet access”, because the Internet isn’t Facebook or Whatsapp (though Facebook would like that). How many users who got on to these packs eventually accessed the entire Internet?

5. On the TRAI only intervening post-facto

COAI says: “TRAI has,in fact intervened post facto in some cases when it deemed desirable to step in and ensure that customers’ right are protected.”

MediaNama’s take: In the past, the TRAI has failed to act quickly enough. How many thousands of complaints about stealing from consumers did it take for them to implement the VAS regulations? It allegedly took a spam call to India’s former Finance minister for the TRAI to come down heavily on SMS spam.

6. On Closed Electronic Communications Network:

COAI says: “While,we do not agree with this;we wish to,however respectfully submit that,TRAI has violated its own understanding of Open Internet by allowing a backdoor entry of differential pricing through CECN.Therefore,the better approach will be to allow differential pricing openly and in a fair and transparent manner rather than through complex rules by way of CECN.Such a regime will only create confusion in the entire internet eco-system.”

MediaNama’s Take: The TRAI should issue a clarification that content and services that are available on the Internet should not be provisioned as a consumer service from a telecom operator to a consumer on a CECN. The TRAI regulation clearly states that the CECN cannot be used for the purpose of evading the regulation.

7. CECN shouldn’t not be allowed:

COAI says: “It may also be noted that the Unified License,Chapter IX,Clause 2.1.(i)stipulates that “The Licensee shall not offer VPN/Closed User Group services to its Subscribers”.The CECN is nothing but a CUG of the electronic kind and hence impermissible as per the License.Further the very concept of CECN,i.e.treating a mobile operator’s network as a closed network, is inconsistent,as the mobile operator’s network (PLMN) by definition is a public network and is accessible by common public and not by a closed user group.”

MediaNama says: If this is correct, then we agree that the CECN should not be allowed. In that context, since services like Airtel Live are also a Closed User Group service, those should be banned, and the telecom operators should be fined for running a service that violates their license agreement.

Full text of COAI’s letter to TRAI

RSM/COAI/2016/115
June 15,2016

Shri Sudhir Gupta,
Secretary,
Telecom Regulatory Authority of India,
Jawaharlal Nehru Marg (old Minto Road)
New Delhi-110002

Sub:Review of TRAI’s Regulation on”Prohibition of Discriminatory Tariffs for Data services Regulations,2016″

Dear Sir,

This is with reference to TRAI’s Regulation on “Prohibition of Discriminatory Tariffs for Data Services Regulations,2016″dated 8th February 2016.

In this regard,we respectfully request that the Authority needs to consider reviewing the said regulation in view of the following reasons:

1. In a fiercely competitive market like ours we sincerely believe that it is probably counter-productive for TRAI to take the extremely harsh position of this Regulation.We believe that the same could hamper the growth of all types of marketing and pricing innovations.Differential tariffs have been permitted for years now and there is no direct or indirect evidence about any harm,which has been caused to anyone due to differential tariffs for data services being offered by the industry,In fact,there is probably ample evidence to show the good done by differential tariffs to expand the market.Thus,we are of the view that regulation is based on hypothetical assumptions rather than on corroborated evidence of discrimination.

2. TRAI has relied on clause no.2.1 (i)of Unified Licence (UL),Chapter IX and 2.29(i) of ISP license agreement while prohibiting differential pricing.These clauses are relating to unrestricted access and mean that TSPs on their own should not restrict/block physical or technical access to any particular content/site,unless directed by DOT/designated authority.However,the unrestricted access clause does not envisage the provisioning of each type of content at the same price or charging only the end user and not the content provider or both simultaneously.We respectfully submit that the Authority has inadvertently mixed up the unrestricted physical or technical access with non-discriminatory commercial access.In all telecom licences,there is a different clause for commercial access which does not prohibit TSPs to offer differential tariffs.These clauses have passed the test of time during last 15 years. For its compliance,TRAI itself has formulated Telecommunication Tariff order (TTO),which ensures the non -discriminatory tariffs for consumers.

3. Ex ante regulation works best when there is corroborating evidence of harm being done by TSPs.It is rather unfair of TRAI to have assumed on its own that differential pricing is equivalent of denying access of internet or any website to end consumers.

4. In the telecom sector,the principle of tariff forbearance has been in vogue since September 2002 and is probably one of the strongest factors for the explosive growth of the sector through healthy market innovations.Intense competition in the market,with 3 to 4 times the number of players as compared to global norms,has ensured that TSPs have always priced sensibly while keeping the customers in mind.However,forbearance does not mean passivity to whatever goes on in the market and the Regulator always reserves the right to intervene whenever it deems necessary.TRAI has,in fact intervened post facto in some cases when it deemed desirable to step in and ensure that customers’ right are protected.We therefore earnestly believe that an evidence-based approach clearly leads to the conclusion that the same methodology would work perfectly for the data market.

5. As stated above,pricing innovation has played a key role in evolution of telecom sector in india and has led to such low rates for voice.Some of these pricing innovations include the special tariff vouchers(STVs)that give STD access at rates even cheaper than local calling rates. On-net calling,STD,roaming,toll-free etc.are all examples of differential voice pricing that has worked well in voice domain.Even other service such as SMS are charged differentially to enable a whole generation of value added services.Also,TSP can offer a tariff to its own subscriber base only,in case TSP offers some tariff/offer/discount to its’entire subscriber base,then it is unfair to term it as discriminatory.Further,differential pricing a is allowed in voice/SME/VAS and parity should continue in data.

6. Pricing flexibility is a core tenet of marketing and innovation.The facility of differential pricing or marketing innovation is critical for the growth of broadband and data services.Customers find differential offerings,a great value proposition as these enable them to use various products/services of their choice at a much lower price.Customers don’t generally understand megabytes and gigabytes.Intuitive pricing is what they understand.Forced pricing around only one parameter i.e.in terms of Bytes (MB,GB etc) is not customer friendly.WE therefore believe that removal of pricing innovation and flexibility,through this regulation,will adversely impact the move towards the Vision of Digital India and will slow down the growth of new internet users.

7. Globally,in a majority of markets,tariff forbearance has been considered as the best regulation.There is no direct and indirect evidence that any of regulatory principles namely – Non- Discriminatory,Transparency,Non – Predatory ,Non -Ambiguous,Not Misleading – are being violated.Therefore,disallowing differential tariffs is an unnecessary and unfair measure taken by TRAI,that too when market forces have been working fine. Thus,an appropriate and reasonable approach outlining certain broad FRAND principles{(Fair,Reasonable and Non-Discriminatory},could have been considered.

8. Further,in the regulation,TRAI has introduced the new concept of “Closed Electronic Communications Network (CECN)”.While TRAI has prohibited TSPs to offer differential tariffs for data services on the basis of content,it has allowed the same over CECN.As per TRAI,Prohibition of differential tariff for data services is necessary to ensure that TSPs continue to fulfill their obligations in keeping the internet open and non -discriminatory.While,we do not agree with this;we wish to,however respectfully submit that,TRAI has violated its own understanding of Open Internet by allowing a backdoor entry of differential pricing through CECN.Therefore,the better approach will be to allow differential pricing openly and in a fair and transparent manner rather than through complex rules by way of CECN.Such a regime will only create confusion in the entire internet eco-system.

9. It may also be noted that the Unified License,Chapter IX,Clause 2.1.(i)stipulates that “The Licensee shall not offer VPN/Closed User Group services to its Subscribers”.The CECN is nothing but a CUG of the electronic kind and hence impermissible as per the License.Further the very concept of CECN,i.e.treating a mobile operator’s network as a closed network, is inconsistent,as the mobile operator’s network (PLMN) by definition is a public network and is accessible by common public and not by a closed user group.

In light of the above,we earnestly request the Hon’ble Authority to review its regulation on differential tariffs on an urgent basis.

We look forward to your kind favorable consideration to the above.

Thanking you,
Yours faithfully,

Rajan S. Mathews
Director General
COAI

*

Disclosure: I’m a co-founder of the SaveTheInternet.in coalition for Net Neutrality, and MediaNama has taken a strong stance on Net Neutrality in India, against differential pricing.