Why did India fall out with Facebook over 'net neutrality'?

All of Facebook’s clout, advertising blitzkrieg, and social media shenanigans were not enough to sway India’s telecom regulator.

On Feb. 08, the Telecom Regulatory Authority of India (TRAI) ruled against discriminatory access to data services, fully backed net neutrality—and effectively killed Facebook’s Free Basics in one of the world’s largest internet markets.

Source Sunlight Foundation, Center for Responsive Politicsd

TRAI said it had “received a large number of responses” to a consultation paper on differential pricing that it released last December. However, the regulator added that the “(m)ajority of the individual comments received did not address the specific questions that were raised in the consultation paper.” In other words, the 11 million-odd template responses that Facebook claimed its users sent to TRAI counted for little.

Instead, the regulator relied on responses from eight service provider associations, 15 service providers, 42 organisations and institutions, and a limited number of individuals, to come to a decision.

After further consultations, including an open house discussion with several stakeholders, TRAI finally decided that the “prohibition of discriminatory tariff for data services is necessary to ensure that service providers continue to fulfil their obligations in keeping the internet open and non-discriminatory.”

But why?

TRAI’s 15-page order (pdf), which spells out the new regulation, provides some insight into its thinking.

No provider to rule it all

Since the internet is essentially an amalgamation of networks, every service provider is dependent on other networks to transmit data. So, allowing one to charge differentially for data could potentially damage the entire “architecture of the internet.”

A particular TSP (telecom service provider) which is offering data services to the consumer does not control the internet infrastructure in its entirety. It is dependent on several other networks to facilitate this task. Thus, allowing a TSP which is at one edge of the internet to charge differentially for data that it does not alone process, could compromise the entire architecture of the internet itself. Were other TSPs across multiple tiers allowed to do this, then the openness of internet as we know, would be altered. Allowing price differentiation based on the type of content being accessed on the internet, would militate against the very basis on which the internet has developed and transformed the way we connect with one another.

Shaping the experience

When India’s net neutrality activists decided to vociferously challenge Facebook’s Free Basics, the social networking giant’s CEO Mark Zuckerberg was surprised. “Who could possibly be against this?,” hewrote in an op-ed, “Instead of wanting to give people access to some basic internet services for free, critics of the program continue to spread false claims – even if that means leaving behind a billion people.”

Turns out, even TRAI isn’t quite convinced, as it explained:

In India, given that a majority of the population are yet to be connected to the internet, allowing service providers to define the nature of access would be equivalent of letting TSPs shape the users’ internet experience. This can prove to be risky in the medium to long term as the knowledge and outlook of those users would be shaped only by the information made available through those select offerings. Further, to the extent that affordability of access is noted to be a cause for exclusion, it is not clear as to how the same users will be in a position to migrate to the open internet if they do not have the resources to do so in the first place.

Flat and open

The TRAI is also concerned about maintaining a level playing field, which is legitimate when the ecosystem includes massive internet service providers such as Airtel, India’s largest telecom company and among the world’s biggest. Or, Reliance Communications—Facebook’s Free Basics partner in India—which will partner with Reliance Jio, the country’s upcoming 4G telecom service that cost some $14 billion to set up.

It is argued that this will create an uneven playing field among content providers and service providers—large, well-established content providers and service providers or those that have the benefit of large networks will find themselves in a much stronger bargaining position as compared to new or smaller businesses. This may create significant entry barriers and thus harm competition and innovation. This poses an even greater concern in cases where there might be a conflict of interest in the service provider’s role as a service provider as well as a participant in a vertical market where it acts in competition with other content providers. New and smaller service providers will face crucial challenges in view of the significant market power enjoyed by bigger service providers and content providers.

Information asymmetry

India’s telecom regulator is also skeptical about certain service providers arguing that users can choose what’s best for them. TRAI isn’t sure that they always can, especially given the “information asymmetry” and the fact that most people who haven’t used the internet don’t know enough about it to make an informed decision.

These assertions need to be tested in light of the market failures existing in the internet services sector. Firstly, the ‘information asymmetry’ between service providers and users leaves users with inadequate information to make an informed choice. Secondly, internet access is not a ‘search good’ but rather an ‘experience good’ which can be understood properly only after being used. Thus, the ‘information asymmetry’ problem cannot be adequately solved through disclosure or transparency requirements, as many consumers may not be in a position to understand the information being presented to them.