Joint Industry Response to TRAI Consultation Paper On Differential Pricing for Data Services Released on December 09, 2015 Preamble 1. Introduction a. At the outset, we would like to state that COAI and AUSPI are fully committed towards connecting the 1 Billion Unconnected Citizens of India and fully supports the digital India vision of the government and suggests adoption of policies and promoting ecosystem which enables fulfilment of this vision. In order to achieve digital literacy, the broadband/internet must be made affordable. b. Our submission to TRAI Consultation Paper on Differential Pricing for Data Services is as below. 2. A Progressive Data Tariff Policy is crucial for the development of Mobile Broadband and Internet Ecosystem a. In a price-sensitive market like India, the policy on data tariff will be a key determinant of take-up of data services usage. Data services usage means internet and broadband usage, which is the critical foundation of all the 9 pillars of Digital India and this therefore has to be accorded the highest policy priority. A flexible and progressive data tariff policy will lead to high mobile data services usage, which would translate into greater adoption of mobile internet and broadband services. b. The roll-out of broadband services is at the inflexion of growth and it is universally accepted that India has one of the most competitive telecom markets in the world and therefore any tariff offering or pricing structure that boosts the internet ecosystem needs to be seriously 1 considered and not prejudged and forbidden through a blanket ruling on grounds of inapplicable apprehensions of discrimination. Such a ban would constitute a welfare- reducing measure of high concern by blocking a possible avenue for our less-advantaged citizens to move to increased economic growth and prosperity by harnessing the power of the Internet. In fact the growth of the voice market has been fueled by the various innovative tariff plans that have been designed by the TSPs to meet the wide and varied requirements of their subscribers. The fact that forbearance and hence differential pricing was permitted by TRAI was an acknowledgement of the existence of adequate competition and maturity level of the Indian market. 3. State of Broadband/Internet Penetration in India a. Status of Broadband: India is a market where 80% of the population still does not have the benefit of mobile data services. From the numerous indicators for measuring the development of broadband in India, we understand: i. As per the State of the Broadband Report - 2014 by Broadband Commission, ITU, India is ranked 142nd in terms of broadband penetration, way below some of its neighboring countries like Bhutan and Sri Lanka. ii. In comparison to other BRIC countries, India ranks the lowest with the Internet adoption rate in other three member-nations of BRIC on an average being more than 3 times the adoption rate in India. Diffusion Rate of Broadband, Internet and Mobile Phones in India iii. In ICT Development Index (IDI), India ranks 129th out of a total 166 countries. Not only is our overall position in ICT Development extremely low, the situation is further 2 exacerbated by the fact that there is an enormous urban/rural digital divide which needs to be bridged rapidly to extend the benefits of ICTs to the common man. Towards this end, providing free/affordable access to data services has to be extended to the uncovered population. b. Importance of Broadband: Improved access to broadband and internet services would promote economic and social growth. As per a Brookings Research Paper, extending internet access to levels seen in developed countries today means that long run productivity could be enhanced by as much as 25% in developing countries. It is estimated that the resulting economic activity could generate $2.2 trillion in additional GDP, a 72% increase in the GDP growth rate, and more than 140 million new jobs (Refer to Annexure-1). As per Analysis Mason, an “increase in broadband penetration of 1% will contribute INR 162 billion, or 0.11% to Indian GDP in 2015. Economic and Social Impact of Improved Internet Access in the Developing World Productivity Gains +25% Total GDP Improvement $2.2 Trillion GDP Growth Gain +72% New Jobs 140 Million Jobs Personal Income Gains $600 Per Person Each Year Number Lifted Out of Extreme Poverty 160 Million People Lives Saved Through Improved Health Care 2.5 Million Lives Source: Brookings, Deloitte, Value of Connectivity: Economic and social benefits of expanding internet access, February, 2014. c. Affordable Broadband Services: The immediate priority in India is to ensure that the affordable broadband services are adopted and utilized by a vast mass of unconnected and low net usage citizens. This is absolutely critical for the success of Digital India and for a speedier and inclusive economic development. d. Investments Required: The roll-out of Broadband and Internet services requires enormous investments to the tune of INR 500,000 crores over the next 3-5 years. Moreover, as per the Government Commitments, the Digital India Programme itself will require investments to the tune of Rs. 113,000 crores. Additionally, the Planning Commission’s 12th Five Year Plan requires an investment of INR 943,899 crores with 93% of the total investment expected to come from the private sector. It was the flexibility of service pricing that was permitted to the TSPs that led to the mass adoption of voice services. A similar approach is warranted for ensuring adoption of data services. However, the entrepreneurs are reluctant to start a new Internet based businesses when online customers are limited due to low adoption of data services. On the other hand, in such a price-sensitive market such as India, without local businesses providing relevant information, content and services in the local languages, the potential customers are unwilling to invest in expensive data plans for their smartphones. There is thus a serious danger of getting trapped in a low connectivity syndrome and slipping further behind other nations in the various connectivity indices. One of the ways to 3 break the spiral is to encourage a market friendly approach which allows price differentiation. 4. Price Differentiation – How is it beneficial? a. As noted by the Authority, the TTO 1999 provides that the TSP shall not discriminate between subscribers of the same class and such classification shall not be arbitrary. Thus, as long as there is a clear differentiation in the classification of subscribers, differential pricing is permitted even under the existing regime. b. Both online content providers and mobile broadband services are characterized by dynamic competition – that is, both industries make large, non-recoupable investments in R&D and physical infrastructure. In such industries, the average cost curve is declining over the relevant range of output: Simply put, it always costs less to produce an incremental unit of output than it costs, on average, to make the previous ones. In such industries, consumer welfare can be increased if firms are able to identify and offer discounts to “marginal” customers, that is, those with lower willingness (or ability) to pay, thus expanding the size of the market and generating the additional revenues that can be used to defray the fixed costs of investment and innovation. It is widely agreed that such differential pricing is not only widespread, but generally improves economic efficiency and increases consumer welfare. Since, connected and poorly connected are two distinct classes, so price differentiation should be allowed. c. The benefits of price differentiation are as follows: i. Improves Economic Efficiency: As per a Research Paper by Jeffrey A. Eisenach, Ph.D., bundling of wireless service and content is a mechanism by which mobile carriers engage in efficient price differentiation, thereby creating the ability for marginal consumers to pay a reduced price by choosing a differentiated product in the form of a “basic” form of online access. In doing so, it improves economic efficiency by supporting continuing investment and innovation in both networks and content while expanding Internet access to consumers who would otherwise be unserved (Refer to Annexure- 2). ii. Increase in Broadband Penetration: In the research paper by Economist Diana Carew, it has been shown that developing countries of sub Saharan Africa, Philippines, Turkey, etc. that had already adopted free access to data services show more people connecting to the internet in these countries (Refer to Annexure-3). iii. Enhance Social Benefits: As per a Research Paper by Mr. Christopher S. Yoo, University of Pennsylvania Law School, when a market is two-sided, instead of bringing 4 together a single class of similarly situated users, networks bring together two completely different classes of users. In those cases, the value is determined not by the number of users of the same class, but rather by the number of users of the other class. As per the paper, it may be socially beneficial for content and application providers to subsidize the prices paid by end users. An advertiser’s willingness to pay for an ad on a particular website depends on the number of end users viewing that website. Under these circumstances, the optimal solution may be for the website owner to subsidize the total number of end users by making payments to the network provider to help defray their costs of connection. The costs of subsidizing more users would be more than offset by the additional revenue generated by the fact that advertisers can now reach more potential customers. In the case of broadband, this would be both economically efficient and would be a boon to consumers both in terms of providing service in more geographic areas and in reducing the prices that consumers pay.