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REFERENCE NOTE. No.6/RN/Ref./February/2016

For the use of Members of Parliament Not for Publication

NET NEUTRALITY: INDIA'S POSITION

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INTRODUCTION Open and non-discriminatory access to the Internet has revolutionized the way people communicate and collaborate, entrepreneurs and corporations conduct business, and Governments and citizens interact. This has led to rapid growth in people-to-people, business-to-people and Government-to-people communications shaping new forms of social interactions, businesses and governance. Thereby, Internet has emerged as a source of innovation in all aspects of human life facilitated by the open, easy, inexpensive and non- discriminatory access to the Internet and the related investments in constructing high speed networks enabling the explosion in data traffic to be carried. The debate on Net Neutrality has sprung from the desire to preserve and protect the open nature of the public Internet arising from the apprehensions of emerging new business models that may impinge on the inherent characteristics of the Internet as we know today1.

UNDERSTANDING NET NEUTRALITY

There is no standard definition of Net Neutrality. Net Neutrality is globally understood as a network principle of equal treatment of data packets moving across the internet. The concept has been used more broadly to describe the open and non-discriminatory access to the Internet.

The expression "Network (Net - for short) Neutrality" was coined by Prof. Tim Wu in 2003 in his paper "Network Neutrality, Boradband Discrimination". According to him “Network neutrality is best defined as a network design principle. The idea is that a maximally useful public information network aspires to treat all content, sites and platforms equally. This allows the network to carry every form of information and support every kind of application”2.

The principle of Net Neutrality states that internet users should be able to access all content on the internet without being discriminated by Telecom Service Providers (TSPs).

1 Net Neutrality- DOT Committee Report, May 2015 2 Ibid 2

This means that

 all websites or applications should be treated equally by TSPs,  all applications should be allowed to be accessed at the same internet speed, and  all applications should be accessible for the same cost.

To understand the concept of net neutrality, it is important to note the four different kinds of stakeholders in the internet space that may be affected by the issue. They are:

 the consumers of any internet service,  the Telecom Service Providers (TSPs) or Internet Service Providers (ISPs),  the Over-The-Top (OTT) service providers (those who provide services such as websites and applications), and  the Government, who may regulate and define relationships between these players. TRAI is an independent regulator in the telecom sector, which mainly regulates TSPs and their licensing conditions, etc3.

NET NEUTRALITY DEBATE Currently, Net Neutrality is a topic of great debate across the world. The debate is, first and foremost, a technical and economic one, with the following core issues at stake :  Traffic management  Managing scarcity of bandwidth by differentiating the traffic streams conveyed over the network;  Investment and increasing capacity;  The quality of service provided to end users.  Unrestricted access of internet.  No premium charges for riding over the network.

Concerns regarding departure from Net Neutrality - Arguments in favour of Net Netrality

 A policy decision to outright depart from “Net Neutrality” raises various antitrust and public interest issues. There are concerns that TSPs will discriminate against certain types of content and political opinions. Such practices may hurt consumers and diminish innovation in complementary sectors such as computer applications and content dissemination. Discriminatory pricing proposals, if implemented, could raise a variety of significant anti-competitive concerns.

3 Net Neutrality in India by Apoorva Shankar, PRS Legislative Research, dated 9.2.2016 3

 Access networks, if left unrestrained by non-discrimination rules, have incentives to favour their own services, applications, and content and to kill competing services. In the absence of non-discrimination rules, last mile carriers can leverage their market power to control/support their voice telecom services.

 One of the concerns is the possibility that TSPs will degrade and/or restrict capacity in traditional internet access to force applications and content providers to use the TSPs new “premium” service. The possibility exists that this degradation and restriction of capacity will happen in a coordinated way, in a cartel-like fashion.

 Besides concerns over incentives for creativity, there is another concern regarding allowing TSPs to charge fees from content producers: it can result in TSPs “competing” for content, as seen in other platform industries, by charging different fees and bargaining on exclusive arrangements with content providers. In turn, such bilateral agreements could inevitably lead to fragmentation—where certain content would only be available on certain TSPs—and hence multiple “internets.”

 The ability of smaller and start-up Content and Application Providers (CAPs) to compete with the more established CAPs may be affected if they are unable to secure access to specific TSPs or afford access-tiering charges, particularly if a TSP with market power reaches an exclusive arrangement with an established CAP or where smaller CAPs are unable to secure affordable access. These potential barriers to entry may deter new start-ups from joining the market, which threatens to hinder innovation and diversity in the long run.

 The fact of the CAPs being charged instead of subscribers will likely mask the true cost of internet service to subscribers. This will further create price distortion and surplus loss; because the generally more competitive market for large business customers will not shield them from the levies imposed by the access carriers.

 Also, there is no simple index or measure of capacity or bandwidth use of an application that is closely correlated to the willingness to pay for that application. For example, bandwidth use is high for some highly valued services, like video on demand, but bandwidth use is very low for information services, such as search or bidding in auctions in real time, which are also highly valuable. In the absence of legally mandated nondiscrimination, TSPs may attempt to capture the consumer surplus that remains after uniform pricing.

Arguments that Counter Net Neutrality Principle  Some experts believe that mandating Net Neutrality would be inconsistent with sound economic management of the internet. Innovations in application services can be better achieved if innovators can respond to price signals from platform providers, such as broadband producers. So, for example, innovators might take into account potential congestion costs of bandwidth-intensive applications.

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 There is a demand for “fast lane” internet in certain sectors, this enables content providers to ensure priority delivery of their content. Telemedicine is one such example.

 According to some experts, if Net Neutrality is imposed, due to rise in data traffic, TSPs will be forced to increase the cost of access for consumers and consumers would be worse off. Instead, CAPs that earn by advertising and other business models should be charged by the TSPs. CAPs are the strongest advocates for Net Neutrality. If a particular TSP were to threaten to charge a or Amazon, they could withdraw the service from that TSP. The loss of this service could result in possible loss of clients for the TSP to other TSPs that have access to these services. While the CAP may lose access to the TSP‟s subscriber base, however, the largest CAPs are now so big and have such a diverse set of users internationally that such a move would have little impact on their overall revenue. This argument is strongest when there is a vibrantly competitive retail broadband market.

 Globally, the market is already dealing with the issue by virtue of a range of new mechanisms, including:  Tiered pricing structures, so that data hungry users are charged additional sums for the data used; and  The use of certain delivery networks by CAPs to reduce their access costs and improve the quality of service for their customers.

 An over-application of Net Neutrality rules will actually reduce the ability of providers to offer properly tiered services to third parties. For example, Net Neutrality rules should not prevent TSPs from providing higher Quality of Services (QoS) to business customers (or home workers). However, where the incumbent has market power, then they will need to be applied in such a way that prevents incumbents from acting anti- competitively and discriminating in favor of their own content and applications business in the provision of such services. Therefore, the issue is actually about the effectiveness of any over-arching telecom regulatory regime and its ability to effectively target discriminatory conduct, drive competition in retail markets where there is wholesale market power and do so in a timely and effective manner4.

On the Net Neutrality continuum, there are two views on the opposite sides of the scale.

On one side of the scale, the view held is that every user must have equal access, via the internet and, more generally, electronic communications networks (regardless of distribution platform) to all of the content, services and applications carried over these networks, regardless of who is supplying or using them, and in a transparent and non-

4 TRAI Consultation Paper on Regulatory Framework for OTT Service, dated 27.3.2015 5 discriminatory fashion. Putting this view into practice comes up against a variety of constraints, such as having to protect the networks from attacks, and from problems of traffic, the need to install mechanisms to comply with legal obligations, maintaining acceptable level of QoS for some real time services etc. Therefore, the network has to be managed with traffic management tools. The traffic management practices adopted may or may not be acceptable from the Net Neutrality point of view.

On the other side of the scale, unlike an infinite resource, the bandwidth of the Net is limited. There are users who require a whole lot more bandwidth than, say, someone sending emails. If someone is using or YouTube, he needs a lot of bandwidth and that too on priority without any significant delay, otherwise the service quality suffers. It can be argued that he should pay a higher price because he is using more space and his traffic needs to be sent on priority. But Net Neutrality proponents say that neither he should be given priority, nor he should be charged higher and his traffic should also be treated in the same way as others on best effort basis.

Moreover, all data packets are not created equal. Data packets of different applications (e.g. an email packet and a VoIP packet, a data packet carrying emergency service information versus another packet carrying video information etc.) have different characteristics and they need different type of treatment on the network for a variety of reasons. The concept of “One size fits all” does not work and networks are inherently designed to differentiate between different types of data packets so that they can be treated differently. Therefore, the puritan view of Net Neutrality has practical limitations and it does not work in the real world. In a pure world of data, there will be differentiation between data packets for one reason or the other, technology also permits this and therefore exceptions will have to be made within the overall principles of Net Neutrality.

The crux of the debate is about striking a balance between the above two views5.

INTERNATIONAL SCENARIO only a few countries have taken a firm position on the issue, and in a few other countries the issues surrounding Net Neutrality were being deliberated. Net Neutrality is a

5 Op.cit., DOT Committee Report 6 complex issue and has different nuances specific to a country depending on its social, political and economic conditions. Accordingly, each country adopts different responses to the issue. On the basis of measures undertaken on Net-Neutrality, nations can be divided in the following three categories:  Countries which have taken no specific measures as the existing mechanism is often considered sufficient to address the issue e.g. Australia, Republic of Korea, New Zealand.

 Countries that have adopted light-touch regulatory measures through transparency, lowering switching barriers, minimum QoS requirements etc. e.g. European Commission, Japan, United Kingdom.

 Countries that have taken or propose to take specific legislative measures to enforce Net Neutrality principles (no blocking, no discrimination in treatment of traffic etc), subject to reasonable traffic management and other exemptions. e.g. Brazil, Chile, France, Netherlands, Singapore, USA (Federal Communications Commission rules).

The international best practices along with core principles of Net Neutrality will help in formulating India specific Net Neutrality approach. Considering the large internet user base and the critical role that Internet plays in our economic, social and political space, India should take a rational approach and initiate action in making an objective policy, specific to the needs of our country6.

FREE BASICS vs NET NEUTRALITY Internet.org was renamed by as Free Basics in September 2015. It is an open platform that gives Indian developers the opportunity to make their services and websites available free of cost to those who cannot afford internet access. However, this free access is limited to partner websites and applications. It was launched two years ago globally in partnership with Samsung, Ericsson, MediaTek, Opera Software, Nokia and Qualcomm.

Facebook launched the Free Basics in India in February 2015 by partnering with . RCom offers the Free Basics service under a „Freenet‟ button on mobile phones. It started with free access to select 33 websites across Gujarat, Maharashtra,

6 Ibid 7

Andhra Pradesh, Telangana, Tamil Nadu, Kerala and Goa. This was subsequently increased to 80 websites.

The supporters of Net Neutrality say that by allowing only certain sites and platforms on the App, and by allowing the services only through some service providers, the concept clearly goes against the spirit of Net Neutrality of open and free access to the and its attendant offerings.

The demand to ban Free Basics is being made by several people who claim to be supporters of Net Neutrality and they say Facebook intends to offer the services only through chosen service providers. This is being seen as discriminatory. The social networking site also has the option to reject the entry of any business participant. This apart, there is a charge that the service is pandering to the interests of telecom service providers by not allowing Internet telephony, or hi-resolution images and videos that can potentially slow down the service.

Advertising is another area of debate, as there is no clarity on whether Facebook will introduce it in the future or not. However, Facebook's contention is that it is providing a free service to those who cannot pay for access. It says it does not stop anyone from accessing the Internet through other service providers.

Following the "Prohibition of Discriminatory Tariffs for Data Services Regulations, 2016" issued on 8 of February 2016 by TRAI, the Facebook has shut down its Free Basics programme in India7. This regulation also puts other zero-rating services like Airtel's Zero in India.

INDIA'S POSITION Until now, Net Neutrality has not directly been regulated in India by any law or policy framework. Over the last year, there have been some developments with respect to the formulation of a Net Neutrality policy.

7 Primer on Net Neutrality, Free Basics, Economic Times, 21.01.2016 8

 TRAI had released consultation papers on different aspects of Net Neutrality

- Regulatory Framework for Over-The-Top Services (OTT) dated 27 March 2015 - Differential Pricing for Data Services dated 9 December 2015

 DoT COMMITTEE REPORT The Department of Telecommunications (DoT) constituted a Committee on 19 January 2015 to examine the issue of net neutrality. The Committee submitted its report in May 2015 with following recommendations :

 The Committee unhesitatingly recommends that “the core principles of Net Neutrality must be adhered to.”

 The international best practices along with core principles of Net Neutrality will help in formulating India specific Net Neutrality approach. India should take a rational approach and initiate action in making an objective policy, specific to the needs of our country. The timing for this is apt, taking into consideration the exponential growth of content and applications on the Internet.

 The primary goals of public policy in the context of Net Neutrality should be directed towards achievement of developmental aims of the country by facilitating “Affordable Broadband”, “Quality Broadband” and “Universal Broadband” for its citizens.

 User rights on the Internet need to be ensured so that TSPs/ISPs do not restrict the ability of the user to send, receive, display, use, post any legal content, application or service on the Internet, or restrict any kind of lawful Internet activity or use.

 OTT application services have been traditionally available in the market for some time and such services enhance consumer welfare and increase productivity. Therefore, such services should be actively encouraged and any impediments in expansion and growth of OTT application services should be removed.

 Specific OTT communication services dealing with messaging should not be interfered with through regulatory instruments.

 The existence of a pricing arbitrage in Voice Over Internet Protocol (VoIP) OTT communication services requires a graduated and calibrated public policy response. In case of OTT VoIP international calling services, a liberal approach may be adopted. However, in case of domestic calls (local and national), communication services by TSPs and OTT communication services may be treated similarly from a regulatory angle for the present. The nature of regulatory similarity, the calibration of regulatory response and its phasing can be appropriately determined after public consultations and TRAI‟s recommendations to this effect. 9

 For OTT application services, there is no case for prescribing regulatory oversight similar to conventional communication services.

 Tariff plans offered by TSPs/ISPs must conform to the principles of Net Neutrality set forth in guidelines issued by the Government as Licensor. TRAI may examine the tariff filings made by TSPs/ISPs to determine whether the tariff plan conforms to the principles of Net Neutrality.

 Content and application providers cannot be permitted to act as gatekeepers and use network operations to extract value in violation of core principles of Net Neutrality, even if it is for an ostensible public purpose.

 A clause, requiring licensee to adhere to the core principles of Net Neutrality, as specified by guidelines issued by the licensor from time to time, should be incorporated in the license conditions of TSP/ISPs. The guidelines can describe the principles and conditions of Net Neutrality in detail and provide applicable criteria to test any violation of the principles of Net Neutrality.

 New legislation, whenever planned for replacing the existing legal framework, must incorporate principles of Net Neutrality. Till such time as an appropriate legal framework is enacted, interim provisions enforceable through licensing conditions as suggested by the Committee may be the way forward.

 National security is paramount, regardless of treatment of Net Neutrality. The measures to ensure compliance of security related requirements from OTT service providers, need to be worked out through inter-ministerial consultations.

 Enforcing Net Neutrality principle is a new idea and may throw up many questions and problems as we go along. For this purpose, an oversight process may be set up by the Government to advise on policies and processes, review guidelines, reporting and auditing procedures and enforcement of rules.

 Capacity building through training, institution building and active engagement with stakeholders is essential. In order to deal with the complexities of the new digital world, a think-tank with best talent may also be set up8.

 Telecom Regulatory Authority of India (TRAI) issued the „Prohibition of Discriminatory Tariffs for Data Services Regulations, 2016‟ on 8 February 2016. It disallows service providers to offer or charge discriminatory tariffs for data services on the basis of content being accessed by a consumer. The above regulation has mandated the following:  No service provider is allowed to enter into any Agreement or Contract that would result in discriminatory tariffs being charged to a consumer on the basis of content (data services),

8 Op.cit., DOT Committee Report 10

 Such tariffs will only be permitted in closed electronic communications networks, which are networks where data is neither received nor transmitted over the internet,  A service provider may reduce tariff for accessing or providing emergency services,  In case of contravention of these regulations, the service provider may have to pay Rs 50,000 per day of contravention, subject to a maximum of Rs 50 lakh, etc9.

CONCLUSION The debate on Net Neutrality is about the future and not about the past or the present. It is about young and their enterprise. It is also about the success in putting the infrastructure on ground and the ground that we still have to cover. It is about freedom and equality as much as it is about regulation and level playing field. Clearly, the debate on Net Neutrality is multi-dimensional and solution to this cannot therefore be uni-dimensional. The way forward is the quest for these multi-dimensional solutions with a holistic, national outlook to the vexed issue of Net Neutrality10.

9 TRAI, Prohibition of Discriminatory Tariffs for Data Services Regulations, 2016, dated 8.2.2016 10 Op.cit., DOT Committee Report