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Tuesday, October 26, 2021

Web of deception

Arguments for state censorship of internet service providers in the name of net neutrality have an Orwellian feel.

April 23, 2015 12:00:59 am
Net Neutrality, If an ISP blocks a major website, slows down another or arbitrarily prices some content higher, you can be sure of a major competitor attack, a consumer exodus and long-term brand erosion.

By: Sudhir Sitapati

Words are funny things. In Yes, Prime Minister, Humphrey Appleby asks a foreign ministry official whether East Yemen is a democracy. “Its full name is the Peoples’ Democratic Republic of East Yemen,” replies the official. “Ah I see,” says Sir Humphrey, “so it is a communist dictatorship.”

Net neutrality has to be the most deceptive neologism of our times. The phrase itself kills debate; after all, who would not want to be “neutral”? But what exactly does the phrase mean?

Net neutrality is the principle that internet service providers (ISPs) should not price data or vary the speed of data on any factor except bandwidth provided. Spun differently, net neutrality is the price control of the internet service industry. Proponents argue that if net neutrality is not maintained, the freedom to search the internet will be in the hands of a few, there would not be a level playing field for start-ups, and cost of data would rise. What if your ISP censored access to a website it is not happy with, or what if a well-funded e-commerce company muscles out a smaller start-up by subsidising free access to its site? Once you buy electricity, supporters of net neutrality argue through analogy, can power companies tell you how to use it?

But if you don’t buy the moral assumption implicit in the phrase and think of net neutrality as a form of price control, a different set of questions emerge: Are the fears of net neutrality proponents justified? What is the loss to society if net neutrality is implemented?

Let’s first tackle the sillier arguments. Electricity companies do charge different rates depending on if you are using power for your house or for agriculture. If they had the technology to do so, they would charge more for luxuries like air conditioners and less for necessities like fans and lights. The TV industry is an example in which a cable comes home, you are charged a fixed amount for installation, a monthly subscription for a bouquet of channels, additional amounts per extra channel you want and some free channels like Star Utsav or Doordarshan. There are plenty of industries that give consumers the choice between a single cost for all services and the option of a lower entry fee with a fee per service used. Why should the internet be any different?

Fear mongering about the monopoly power of ISPs is based on thin evidence. There are 325 ISPs in India, 25 of which are national and two are government owned. Competition is intense, scrutiny is high and the consumer barrier to change ISPs is low. If an ISP blocks a major website, slows down another or arbitrarily prices some content higher, you can be sure of a major competitor attack, a consumer exodus and long-term brand erosion. This is what happens in all industries, even ones with a lot less competition than this one. Given the high demand for an open internet, there will always be ISPs who give consumers the choice between “open internet” packages or packages that allow you to access only select websites. If I want to access only WhatsApp and Facebook, why should I pay for the freedom to access the entire internet?

That data prices will rise if net neutrality is violated is another strawman. Prices in an industry are determined by costs, competition and service quality. None of these is dependent on net neutrality. If my ISP charged me an extra fee to access individual websites in addition to the charges I already pay, I will leave it. And if you are worried about all ISPs colluding to take up prices, why have they not done so already? In fact, Indian data prices have crashed in the last decade and are among the lowest in the world. What will happen is the opposite of price increase. A 101 class in economics will tell you that price differentiation in a competitive market leads to lower prices for the poor because firms tend to maximise total revenue by using the profits made from the rich to subsidise the poor.

Nobel laureate Gary Becker in his paper, “Net neutrality and Consumer welfare”, wryly notes that “preserving an open and free internet” is by itself not an economically appropriate goal of public policy and that governments should focus on maximising consumer welfare. In other words, even if the absence of net neutrality favours a multi-billion dollar company over a fledgling start-up (and this is not clear), it is not the government’s problem. The impact on consumer welfare is.

The real question is the impact of net neutrality on consumer welfare in India. The internet is the defining technology of our times. But it does not come for free. Billions of dollars are required to create the infrastructure that makes it available. This cost has to be recouped through prices, prices that the 180 million netizens of India willingly pay for but the balance billion cannot afford. It is naïve to imagine a free internet for all 1.2 billion people. But if critical services like banking, medicine, communication and commerce are made freely available to a billion people because content providers subsidise it, imagine the impact it can make on the lives of the poor.

The internet is much like other freedoms we cherish: ensured by competition and choice, not by heavy-handed government intervention. Arguments for state censorship of ISPs in the name of net neutrality have an Orwellian feel — the ability to conjure up phrases to imply the exact opposite of their actual meaning.

The writer works as a marketing professional in a consumer goods company. Views are personal.

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