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COLUMN: The True Price of Facebook’s ‘Free Internet’ program

fb-basics-appealFacebook, the world’s biggest social network, is prompting its users to send a submission to the Telecom Regulatory Authority of India to save its ‘Free Basics’ program, urging them to fight the “small, vocal group” of net neutrality activists.

“A small, vocal group of critics are lobbying to have Free Basics banned on the basis of net neutrality. Instead of giving people access to some basic internet services for free, they demand that people pay equally to access all internet services – even if that means 1 billion people can’t afford to access any services,” Facebook is urging in its ‘offer’.

Users have to just click a button and an email with their name and email address will be sent to the TRAI and become part of the ongoing consultation on ‘walled garden’ Internet.

Facebook has its own version of the Internet, in which there are practically no pictures or videos. To be present on Facebook’s version of the web, each website must apply to the social network, agree to its terms and offer a modified version of its content without heavy files like pictures and videos.

It is not clear whether the social network allows these websites to support themselves through advertising or whether this has to be done free. The company’s ‘free Internet’ is currently available only on Reliance Communications, but the US giant has plans to get other telecom companies to support it later on.

Clicking a button would send the following email to the TRAI with the user’s email address:

“I support digital equality for India. Free Basics provides free access to essential internet services like communication, education, healthcare, employment, farming and more. It helps those who can’t afford to pay for data, or who need a little help getting started online. And it’s open to all people, developers and mobile operators. With 1 billion Indian people not yet connected, shutting down Free Basics would hurt our country’s most vulnerable people. I support Free Basics – and digital equality for India. Thank you.”

TIT FOR TAT?

Facebook may be trying to counter a similar move made by net neutrality activists in India during an earlier consultation by the regulator this year.

At the time, many Internet companies, artists, social media users, intellectuals and rights activists had organized an effort to spread awareness about what they called the dangers of having ‘walled garden’ Internets. 1 million emails had gone to the TRAI last time against ‘walled garden’ Internets.

According to them, if each telecom company (such as Bharti Airtel or Idea Cellular) is allowed to have its own version of the Internet like Facebook, then websites and apps will soon have to pay these operators to reach customers. If the website or app does not pay them, they will be put on the ‘expensive’ Internet pack, and if they pay, they will be on the ‘basic’ or ‘cheap’ Internet pack.

Telecom companies are in favor of this idea because it will allow them to earn money from websites and apps. However, website owners, such as the Times of India, are dead against the idea because any telecom operator can demand money from them or block them if ‘walled gardens’ are allowed and net neutrality is compromised.

While the first TRAI paper seemed to suggest that walled garden Internets would allow telecom companies to maintain their profit levels, the second and most recent TRAI paper does not take a sympathetic view of every company offering its own version of the Internet and charging websites money to be on it.

For example, the new paper says: “Differential tariffs can be used as a tool by the telecom service providers to incentivize or disincentive access to different contents available on the internet by varying the price of access, upward or downward,” the TRAI  said. “Theoretically this might entail providing certain content for free while making other content prohibitively expensive for subscribers to access. Allowing service providers to perform what effectively amounts to a gate keeping function might potentially empower telecom service providers to select certain content providers and disadvantage others, thereby adversely affecting public interest.”

EVOLVING BUSINESS MODELSnet-neutrality-india

Many believe that Facebook may be trying to create an ad-supported version of today’s Internet access.

The Internet comprises largely two sections – the content side and the network side. The content side consists of the millions of servers and the websites and content hosted on them and is already mostly ad-supported.

The network side consists of the millions of lines of fiber optic cable, wireless networks and spectrum which connect the content side to the end consumer.

Unlike the content side, which is owned by millions of small companies, the network side is owned and operated by a relatively smaller number of telecommunications companies like AT&T, Bharti Airtel, Singtel, Vodafone etc.

Because each user deals with dozens and sometimes hundreds and thousands of websites and content companies per day, it is almost impossible for them to directly pay each of these websites every time they use it, or even pay them once a month. As a result, an ad-based model works better on the content side.

However, on the network side, each consumer deals with only one company — says Vodafone or Bharti Airtel — and can therefore pay that access provider in cash, instead of having to see video ads or annoying popups from their internet service provider when they’re browsing the web.

Net neutrality is a set of rules that ensure that this business model works and it has ensured the growth of biggies like Google and Facebook on the content side and firms like AT&T and Vodafone on the network side.

However, with companies growing bigger, many want to control more and more of the Internet. With more and more money at their disposal, both big content companies and big network companies want to extend their control to the other side. Standing in the way is net neutrality.

FROM CONTENT TO NETWORKS

Facebook has grown so big that it is, without doubt, the single biggest website as far time spent by Internet users are concerned.

Like any big product company, Facebook is seeking to have more control over the distribution side.

And in this attempt, Facebook has an unbeatable advantage that Airtel, Idea and AT&T don’t have — the power of free.

Unlike traditional network companies, Facebook has the revenue and relationships to deliver a ‘free’ Internet access service. ‘Free’ is of course a marketing term, as Facebook’s services are ad-supported.

According to those who favor this evolutionary view of things, it is inevitable that Internet access or the network side becomes ad-supported just like the content side.

The change, they believe, will be driven by big content companies like Facebook and Google who have billions of dollars of ad revenue at their disposal.

Facebook’s Free Basics is a great example.

Facebook, as the owner of the application or the platform, has the right to generate revenue by placing ads targeting everyone who uses Free Basics.

This ad revenue can then be split in three parts. One part goes to the telecom operator, one part to the content owner or website and the remaining part to Facebook itself, which owns the platform.

Of course, there would be telecom operators who refuse to accept such a relationship. After all, why would they let go of their customers and become a mere supplier of wholesale bandwidth to a company like Facebook?

This is where the power of the free comes in. Why would a consumer buy an Internet pack from Airtel when Facebook partners like Reliance Communications is providing ‘Free Internet’?

In addition, Facebook could persuade some (or newer) content companies to be ‘exclusive’ to its ‘Free Internet’, and not offer their content outside its Internet. This would offer further leverage in trying to bring in telecom partners.

Content companies who refuse to co-operate will also be faced with the prospect of losing a large chunk of their regular customers who have now switched to ‘free Internet’.

FROM NETWORKS TO CONTENT

Of course, Facebook is not the only one who wants to bridge the content-distribution divide.

In parallel, the network or telecom companies dreaming of a world in which they control not only the networks, but also the content, allowing them to make even more money.

And for this, their role model is the world of satellite and cable.

On cable TV, if you are a content company (a TV channel), then you have to pay money to the network provider (Dish TV, Airtel Digital, Tata Sky, Hathway and so on).

If you don’t pay money to the network, they remove your channel from the ‘free’ or ‘basic’ package and a customer will have to pay a very high amount of money to watch your channel — as high as Rs 50 per channel.

On the other hand, if you pay the DTH or cable operator, then the subscriber will get your channel for ‘free’ in the basic tier.

To make it clear, there is no ‘net neutrality’ in the DTH and cable business.The network company takes money from both the consumer and the content provider.

Telecom companies think it’s a great business model and can’t wait to launch their own versions of ‘basic’ Internet and expensive Internet.

If the same business model could be applied to the Internet, big websites like Times of India and Google would be forced to pay the operators to be on the ‘basic’ Internet offering.

If they don’t pay, then their website will be available only to people who take very expensive packages. So the telecom operator gets money from both sides — from the consumers, as well as from the websites.

PUBLIC INTEREST AND FREEDOM

These, so far, are questions of evolving business relationships. But scrapping net neutrality also has implications for growth and freedom.

If smaller companies, apps and start-ups have to pay all the telecom operators in the world to reach everyone on the Internet or accept all terms and conditions imposed by Facebook, it would mean far, far fewer startups and new services.

One of the aspects of the Internet so far has been the extremely low cost of starting a company or a service on it.

This has encouraged people like Facebook’s Mark Zuckerberg and Jan Koum and Brian Acton to launch their own companies from their bedrooms and garages.

If Mark Zuckerberg had to pay money to AT&T, Verizon, Bharti Airtel, Vodafone and a hundred other telecom companies to start his company, it is unlikely that we would have Facebook or Gmail today. We would still be using Microsoft Outlook for all our communications.

The same can be said for WhatsApp, Google and nearly every other website out there.

It is also unlikely that, in 2005, Sequoia Capital would have given $11 million to three ex-Paypal employees — Chad Hurley, Steve Chen, and Jawed Karim — to expand their fledgling video sharing website Youtube, if they had to pay each and every telecom operator in the world to launch their global website.

In other words, without net neutrality, the Internet today would have like your company’s corporate intranet — the same technology, but very different content.

Net neutrality advocates believe that the best of the Internet is yet to come. They believe that many more wonderful companies and services will be launched on the Internet in coming years, and if innovators and start-ups have to pay all the telecom companies in the world to launch their services, then these services would never see the light of the day.

This is perhaps the biggest argument in favor of net neutrality and against letting companies like Facebook and Airtel decide who will be on the Internet base pack and who won’t be. Tell us what you think.
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