India's ‘Facebook ruling’ is another nail in the coffin of the MNO model
Ability to access 'net from mobe no longer considered a miracle.
The article was published in the Register on February 15, 2016. Pranesh Prakash gave inputs.
Nobody could accuse India’s telecoms regulator, TRAI, of being in the operators’ pockets. This month it has, once again, set eye-watering reserve prices for the upcoming 700 MHz spectrum auction (see separate item), and now it has taken one of the toughest stances in the world on net neutrality, in effect banning zero rated or discounted content deals like Reliance Communications’ Facebook Basics, or Bharti Airtel’s Zero.
In a ruling last Monday, TRAI said telecoms providers are banned from offering discriminatory tariffs for data services based on content, and from entering deals to subsidize access to certain websites. They have six months to wind down any existing arrangements which contravene the new rules. Its stance is even stricter than in other countries with strong pro-neutrality laws, such as Brazil and The Netherlands.
“This is the most extensive and stringent regulation on differential pricing anywhere in the world,” Pranesh Prakash, policy director at the Centre for Internet and Society, said. “Those who suggested regulation in place of complete ban have clearly lost.”
Such decisions, combined with high spectrum costs, will quickly make the traditional cellular business model unworkable in India, and the more that happens, the more wireless internet innovation will switch to open networks running on Wi-Fi and unlicensed spectrum. R.S. Sharma, chairman of TRAI, was careful to tell reporters that the zero rating ruling would not affect any plans to offer free Wi-Fi services, like those planned by Google in a venture with Indian Railways.
A disaster for MNOs, not Facebook
Facebook pronounced itself “disappointed” at TRAI’s ruling, having lobbied aggressively for a more flexible approach since RCOM was forced to suspend the Basics offering in December while the consultation process took place. But while the ruling bars the Basics offering – which provided free, low speed access, on RCOM’s network, to a selection of websites, curated by Facebook – it does not stop the social media giant pursuing other initiatives within its internet.org umbrella. These include projects to extend access using its own networks, powered by drones and unlicensed spectrum, to the unserved of India and other emerging economies.
So while the TRAI decision may be a setback for Facebook, it is not the body blow that it represents for the MNOs with their huge debt loads and infrastructure costs, and low ARPUs. Facebook, with 130m users in India, has a comparable reach to the Indian MNOs (only three, Bharti Airtel, Vodafone and Idea, have more subscribers than Facebook has users), and is better skilled at monetizing those consumers.
The challenge for companies like Facebook is that strict neutrality rules reduce their ability to harness others’ networks in order to reach out to new users. There are about 240m people in India who are online, but don’t use Facebook, and about 800m who are not connected, so the growth potential is far larger than in the other 37 countries where Basics is offered, such as Kenya or Zambia (Facebook is blocked in China). Using RCOM’s network and marketing activities was a far cheaper way to reach some of those people than launching drones, but Facebook has other options too, including its existing efforts to make its services more usable on very basic handsets and connections; the ability to leverage the WhatsApp brand; and partnerships with Wi-Fi providers.
The drones may have less immediate results than Basics, but they are a high profile example of an ongoing shift towards open networks, which has been going on for years, driven more by Wi-Fi proliferation than neutrality laws. The latter will be an accelerant, however.
All internet will be free, not zero rated
Currently, zero rating is an increasingly popular tactic to lure users with an apparently cheap deal and then, hopefully, see them upgrade to richer data plans, or spend money on m-commerce and premium content, in future. Zero rating involves allowing users access to selected websites and services without it affecting their data caps or allowances.
The US regulator has so far tolerated the practice, but the debate is raging, there and elsewhere, over whether it infringes neutrality laws, by offering different pricing for different internet services. If other authorities take the stance adopted by TRAI in India, operators will have to find new ways to attract customers and differentiate themselves.
Increasingly, access to a truly open internet will be the baseline, and priced extremely low. That low pricing will be made commercially viable by rising use of Wi-Fi to reduce cost of data delivery, whether for MNOs, wireline providers or web players like Google and Facebook, which are moving into access provision. Providers, whether traditional or new, will have to stop regarding access to the internet as a premium service or a privilege – it will be more akin to connecting someone to the electricity grid, just the base enabler of the real revenue model.
Just as it’s only when users plug something into that grid that they start to pay fees, so the operators will charge for higher value offerings which ride on top of the internet – premium content, enterprise services, cloud storage, freemium applications and so on.
The mobile operators have not embraced these ideas willingly. For years, the ability to access the internet from a mobile device was regarded as a value-add, almost a miracle. Now that the wireless network is often the primary access method, they need to change their ideas and be more like the smarter cablecos – which have tacked internet access onto a model driven by paid-for content and services – or the web giants, which have worked out ways to monetize ‘free’ access, from advertising to big data.
This, of course, is one of the goals of internet.org and Google’s similar initiatives involving drones, white space spectrum and satellites. The more users are able to access the internet, preferably for free, and the more they see Google or Facebook as their primary conduits to the web, the more data these companies have to feed into their deep learning platforms, their context aware services and their advertising and big data engines.
So while critics of TRAI said the zero rating decision was a setback to the goal of getting internet access into the hands of the huge underserved population of India, that population is too large and potentially rich for Facebook and its rivals to give up at the first hurdle.
Facebook CEO Mark Zuckerberg wrote in a blog post: "While we're disappointed with today's decision, I want to personally communicate that we are committed to keep working to break down barriers to connectivity in India and around the world. Internet.org has many initiatives, and we will keep working until everyone has access to the internet."