The thing called #NetNeutrality

By now I am sure you would have heard and read a lot about the term Net Neutrality and hence I shall not seek to reinvent the wheel so as to say. I myself have been reading voices both in favor and against Net Neutrality as its being understood but rarely have I seen a voice so uniform that the government regulate what kind of services a business can offer for free and offer for a fee.

Net Neutrality in the US pertained to telecom companies offering a higher speed for a few firms that paid them off and the normal or even throttled speed for others. In other words, they said that only if you pay me (the toll booth operator?), I shall allow you this road that has no signals so that you can reach your customers faster. The rest would have to use the normal road and since everyone else shall use the road, this would be slower. This has been seen as wrong and telecom companies out in the US now have to offer the same speed to everyone.

The key point in India is interestingly not about throttling speeds for certain websites which is not happening (supposedly) but about offering for free certain services (Applications) by charging the site operator instead of the end customer. The one making the biggest noise has been Airtel Zero since it was the first to take the initiative and the Facebook promoted internet.org

One of the key concerns among those who are against Airtel Zero and are compelling sites that have signed up with them to withdraw is that by providing certain sites for free, Airtel (and other Telecom operators who are sure to come up with similar plans) shall end up killing the small guy who is unable to pay for the said service and hence may not reach a large portion of users who would not be able to get to their site since they lack the internet connection that they need.

When mobiles were first introduced to India, the call rates were so high that the number of users were those who could afford to not just buy the expensive handset but also pay for the expensive calls (both Incoming and Outgoing). Its only as competition picked up and volumes grew that we now see more people having mobile phones than those having toilets.

While the growth of cell phone in India has been legendary so as to speak, the question here is whether we shall see similar growth in data. Right now, data is expensive (if measured as % of what a general user of telephone pays). While one can have a active phone (for incoming only) with only a Rupee as balance, the same is not possible with data. Also, while more and more people are now getting hooked to smart phones, I doubt if we are seeing the same kind of growth in 3G packages. My guess is that is not happening since 3G packages start for a month at prices close or even more than what many pay for their voice calls.

The way internet penetration (via Mobile) is calculated is by adding anyone who has even mistakenly clicked and went online. If one were to check the major apps and come up with the number of concurrent users and extrapolate them, the number we are looking would be a lot smaller. And even in that, one needs to check how many actually are using 2G / 3G data and how many are using a Wifi connection.

Coming back to the claim that products like Airtel Zero would kill the new competition which would be unable to compete with them, I wonder how many have a clue as to what it takes to survive in this eCommerce world where companies are trying to raise as much cash as possible to ensure that the competition is killed not by quality of service but by ability to burn money for longer than others.

If anyone had read the interview of Taxi for Sure founder, he can recall that the promoters were forced to sell as they were “running out of cash” even as Ola which would have been incurring a similar if not higher cash burn was able to sustain by raising more capital. Anyone today who fancies to start a  taxi aggregator better have deep pockets with the ability to go deeper.

In terms of the general eCommerce companies, giving a fight to Flipkart / Snapdeal or Amazon is no child’s play. While there are nearly a dozen other sites that sell Books, how many have one even bothered to visit, forget about purchasing the same in recent times.

Good friend Deepak Shenoy had a wonderful write up on how Telecom companies were not losing money. The write was one of excellent data analysis. But then again, while he used the example of Airtel and Idea, he omitted companies like RCom, TTML and MTNL (all listed with financials available) who are literally bleeding to death. BSNL, the other biggie is also on the path of obscurity.

To me, Telecom companies are not utility companies in the sense that they get to have a fixed rate of return. The winners are ones who provide better services than the competition. The reason Airtel is able to generate a good ROE has more to do with its ability to please customers. Displease them and a competitor will be happy to have them port out to them.

Nowhere in business is there a equal field for everyone. The success of Big Bazaar / Brand Factory / Reliance Fresh was in affect more due to the deep pockets of their owners than any other advantage. For them, the biggest risk they see is not the corner grocery store owner still in business but the likes of sites which having raised Billions can undercut any other store as long as they care to.

The number of people who are online in India is a very minuscule part and unless one thinks that the government should provide internet for free, things like Airtel Zero are the only way to bring them to the super highway. Once exposed, the addiction will have them move to other sites rather than just stick with what is offered.

Yes, Airtel Zero has its faults, especially when it comes to things like Hike, but that said does it make sense to deprive a large part of population from the ability to traverse even the little bit for free?

The War in my opinion has to be against telecom companies offering a fast lane and a slow lane. All lanes should have equal speed regardless of whether there is a conflict of interest or not. But if they want to provide a service road for free, who am I to say that they should not offer the same.

In the world of stock broking where I have been for the last 18 years, the brokerage has been on a steady fall not due to government intervention but due to competition. We have witnessed the same in Telecom as well and the way forward is to ensure that the government enables this to remain a competitive field rather than have it restricted to the benefit of the few.