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Why telco’s no-level-playing-field argument on net neutrality is wrong

The main argument put forward by telecom operators in the ongoing net neutrality consultation with regulator TRAI is that they are forced to pay a lot of levies, which the apps do not pay any of them.

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This, according to the service providers, creates a ‘non level playing field’ and therefore, the app providers, such as WhatsApp and Skype, must be subjected to the same levies such as spectrum charge, license fees etc..

Let us examine this argument in detail.

According to Airtel, the following expenses are incurred by them, but not by WhatsApp or Skype:

— Purchase of spectrum
— Payment of Regulatory Levies and Taxes (spectrum charge, service tax etc)
— Expense on phone-tapping facility
— Emergency numbers (police, fire etc.)

According to operators, customers who are using apps are essentially using a communication method that does not involve the payment of any of these levies, and therefore, there is unfair competition between telecom operators’ voice call service and that offered by WhatsApp.

Let us really see if this is true. When person A makes a call to person B on WhatsApp, both persons pay data charges to their telecom operator. This data charge includes service tax, spectrum fee, license fee etc..

In other words, whenever someone uses WhatsApp to make a call, they are ‘riding on top of’ telecom networks, and using the service provided by telecom operators. As consumers, they pay data charges. These data charges include all the above expenses.

Therefore to say that consumers who use WhatsApp and Skype calling are using an ‘alternate’ communication mechanism is wrong.

Let us explain it using two examples – one from Telecom, and the other from logistics.

TELECOM EXAMPLE

Nowadays, telecom operators like Bharti Airtel and Idea Cellular do not own their own towers. They use the towers put up by other companies such as Indus Telecom, GTL Infrastructure etc..

In a way, they are riding on top of these tower companies.

The tower company has to pay different charges. For example, the tower company pays rent for the location, it invests in creating the tower, it pay fuel charges and several other charges such as local taxes.

Does the telecom operator pay all these charges? No. Instead, the telecom operator simply pays ‘usage charges’ to the tower company.

Now suppose, the tower company says – “how can telecom operator offer his services on top of my towers without paying rent for the location, diesel bill etc? It is grossly unfair!”

Would it make any sense? No, because it is precisely because of customers like telecom operators that the tower company is able to pay the charges such as monthly rent and power bills.

If there were no telecom operators as customers, there would be no income to the tower company, and they won’t be able to pay any bills either.

To say telecom operators do not pay diesel bills, power bills and location rent is wrong — because they pay it indirectly through usage charges.

Whenever they pay money to the tower company as usage charge, they are actually indirectly paying all these charges.

It is the same thing with people like you and me using apps like WhatsApp. It is not correct to say that consumers who are using apps are not paying spectrum charges etc., while only those who use voice calling are paying them. Both are paying, as both type of consumers pay usage charges.

LOGISTICS EXAMPLE

Another example will illustrate this further.

Suppose there is a private courier service that uses Indian Railways to conduct its services, and suppose there is an Indian Railways courier service as well.

Suppose, Indian Railways courier service charges very high rates to keep profits high — say Rs 100 per kg to send stuff from Mumbai to Delhi. However, the private courier service charges only Rs 50 per kg, even though it is also routing its delivery through Indian Railway courier service.

The private courier service is buying bulk capacity on Indian Railway courier service at cheap rates, and then selling it at Rs 50 per kg, while Indian Railway courier is selling it at Rs 100 per kg.

Now, suppose Indian Railways approaches the government and says — this private courier service is riding on top of our network and killing us by offering cheap rates. Please stop them.

What should the government do – tell Indian Railways courier service to charge less, or put new taxes on private courier service to force it to raise prices?

The problem, if any, lies with Indian Railways courier service’s pricing. It is pricing cheap for wholesale customers (data customers) and charging very high for retail customers (voice customers.) So, a third player has come and taken advantage of this price disparity.

The obvious solution to the problem is to remove this price disparity and arbitrage – either by raising wholesale price, or by reducing retail price, or both. The solution is not to block the private courier service to force people to use Indian Railway courier service at high prices.

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