Exponentially growing start-ups have become digital suckers

http://www.ciol.com/exponentially-growing-start-ups-have-become-digital-suckers/

April 21, 20150

MUMBAI, INDIA: While the debate on Net Neutrality has taken an unprecedented high, let us

try and understand a service provider’s perspective on the issue.

One is they have made significant investments in building infrastructure and their networks

cannot be just used by the exponentially growing start-ups ecosystem who have become

digital suckers. They create newer technology platforms, congest the service provider’s

network to a great extent, thereby using operator margins by giving away majority of their

services for free.

The service providers argue against Net Neutrality and their collated opinion is articulated in

the following points.

Excessive use of the Internet is leading to serious bandwidth issues due to congestion. It has

been observed that the usage is skewed considering around one-fifth of users consume more

than four-fifth of their bandwidth by either streaming songs, videos or downloading large files.

Such netizen activities have pushed service providers to think differently and devise business

models to sustain themselves in the ever challenging environment of dipping ARPUs, high

infrastructure (indeed it is very expensive) as well as maintenance cost and competition.

Making separate paths to provide efficient Internet to all netizens since they generally have

concerns related to speed and bandwidth. Service providers argue that by charging more for

certain services, to offer faster access to consumers would invariably reduce congestion on

their network and in turn make it faster and smoother for users. They argue that unless they

are able to generate greater revenue from such services which are accessed over the net,

they would not have funds in future to invest in building further infrastructure and thereby

impacting user experience in future.

SPs have invested billions of dollars in spectrum fees, network roll-outs, license fees since

infrastructure is backbone to providing proper internet access; yet there is negative return on

capital employed in India. Industry estimates say, to realize PM Narendra Modi’s vision of

Digital India connecting 1 billion Indians, approximately Rs 3 lakh crore to-Rs 5 lakh crore has

to be spent over next 10 years. To make such high investments, service providers need to

find ways that can guarantee returns for such voluminous investments in long run so that they

can provide better user experience to the netizens.

What’s happening in the US?

In USA, Federal Communications Commission has defined Network, or Net Neutrality as

another way to refer to open Internet principles. However, according to some experts, Net

Neutrality has no widely accepted definition, but usually means that Telecom Service

Providers charge consumers only once for Internet access without differentiating between

content over the network and content providers.

With an intent on clarifying things, new rules on how the Internet should be governed have

been recently approved by the FCC. In what is seen as a victory for advocates of Net

Neutrality, the commission voted in favour of the following changes:

• Broadband access been reclassified as a telecom service, thereby bringing it under the ambit

of stricter regulation

• Internet providers cannot go for deals with content companies, for smoother delivery of traffic

to consumers

• Service providers would not be able to speed up or block service for a fee

With these rules coming into effect, service providers have voiced their concern. It has to be

seen how they take it forward considering they plan to appeal against these changes brought

in by FCC.

Conclusion:

Net Neutrality implies there cannot be price discrimination between customers that access

content and suppliers of the content. However experts feel that price differentiation is valid

considering view of externalities ie if a video service providers uses up lot of bandwidth it

should pay more for the same. Some experts are of the opinion of allowing differential pricing

for audio, video streaming and large file downloads with rest remaining as in for the benefit of

the wider population.

While net neutrality is imperative for us to access freely and fairly any service or information

through internet, what is probably needed is a new look at the entire commercial aspect to

ensure revenues can be raised by service providers without offering differential treatment to

consumers for their data access.

The article is authored by Kalyan Banga, Director, Market Research & Analytics; VOZIQ,

and views expressed are his own