Why Free Basics & Airtel Zero are bad for India

“Free Basics is the new colonialism, its the new East India Company…”, said someone on television the other night about Facebook’s charitable initiative. I’m thinking to myself, there are no free lunches, so why is this even a debate?

Free Basics is an old debate about Net Neutrality. Its been defeated by regulation in the West, but in India we like debate. Facebook has made it so easy to sign a petition supporting Free Basics that hovering over the banner in your FB feed is enough! Many have accidentally succumbed.

Policy makers, telecoms, COAI & even TRAI are favouring a trial. They cite Delhi’s odd even car trial to reduce pollution as a precedent. Exactly how toxic pollution that is killing people compares with Free Basics eludes me.

To understand Free Basics, its first important to understand the Internet eco-system.

First The Basics

I see the Internet as a large reservoir of water. There are the content providers (Facebook & Google) who pump water into the reservoir and then us, the consumers, who tap in with little pipes drawing what water we need. The plumbing is owned by the telecom operators who charge both the content providers and subscribers for their respective pipes. The content companies make money from the subscribers who receive a service that they value and life comes a full circle.

Neutrality is in the fact that everyone gets the same water, just more or less, faster or slower. Everyone pays and none of us get champagne even if we can afford it!

Strange Bed Fellows

Circa 2000, the new new content companies were fighting tooth and nail with telecom operators. They wanted lower bandwidth prices, fatter pipes, unlimited always on Internet. The underlying motive was to drive faster Internet penetration leading to greater valuations which were based on unique user visits. Slow growth in Internet connectivity directly impacted their future.

AOL’s merger with Time Warner was an attempt to solve the slow growth problem and create a behemoth that built its own pipes and content. It has since become a corporate disaster case study.

Is Free Basics a similar attempt? Of course it is, just that the theatre is the third world. India still needs to connect billions and Facebook doesn’t have the patience to wait for our telecom providers and government to deliver connectivity. It wants to guarantee it’s market dominance in India’s future. Not charity, just plain old profit motive.

What is different this time is that Indian telecom providers want to join forces with Free Basics. Let’s try and understand their game.

How Internet Providers Makes Money

The provider game is simple. Lay a big fat pipe to the reservoir, say 1 gigabit (1,000 megabits). Then we split this pipe between a 1,000 paying subscribers, each sold a 10 megabit connection. Hold on, 1,000 x 10 is 10,000 megabits or 10 gigabits, so how do we fit all of them into the original 1 gigabit reservoir pipe? By betting on the fact that not all 1,000 subscribers will download at the same time. This is what we call oversubscription and this is how we make money.

Subscribers only see the ill effects of oversubscription during peak hours when everyone starts downloading and consequently everything slows down. Oversubscription to my mind is fair game, so long as it doesn’t mess with the end deliverable.

Content Differentiation & Deep Packet Inspection (DPI)

So how does a service provider differentiate content? How does your ISP create differential pricing?

DPI technology has been widely used by ISPs and telecoms to look inside your Internet traffic. Most people don’t know that their ISP is already differentiating P2P & torrent content, throttling it down to improve oversubscription and pack in more paying customers.

Free Basics, Airtel Zero and other similar initiatives all use DPI to control ALL your flows, throttle & (eventually) charge depending on what you access.

Think of it like a new toll gate for every website you wish to go to. Its only a matter of time that premiums will be linked to peak hour traffic!

How Airtel Zero Would Make Money

Airtel Zero is simply a differential pricing game. Zero charge for curated content, delivered faster, regular charge for everything else. An express lane of sorts, for the wealthy content owners to expand their market share while telecom operators add to their profits by charging the content providers for delivery. Of course, the real game all along is control over the medium and eventually the customer.

Imagine if your electricity company could charge you on the basis of which appliance you used in your house? Large appliance makers would subsidise electricity giving them an unfair advantage in the marketplace, making it tougher  for smaller appliance companies to compete. And in time, the nexus of the appliance and electricity companies would monopolise the market, affecting all consumers.

 

How Facebook Would Make Money

If Facebook is the only channel you can watch on TV, what would advertisers be willing to pay? You do the math.

With nearly a billion people waiting to come online in India, Facebook wants to accelerate connectivity, while ensuring they become the de facto medium with a captive audience.

No thank you, but India is done with colonialism. We can pay for our citizens to come online in good time.

Conclusion

The Internet is a great leveller because you cannot differentiate upon the end use or user. Governments should focus on building affordable broadband services accessible to all citizens with a view to empower and provide a level playing field to all stakeholders. TRAI & COAI should stop pushing agendas that are less than charitable.

Telecom operators must focus on building capacity, improving service quality and ridding themselves of a monopolistic mindset. Data is growing rapidly and companies like Airtel have benefitted greatly from 3G growth. If anything, they are responsible for driving voice tariffs to global lows and now trying to slice and dice the Internet is poor strategy.

Facebook should realise that free Facebook, WhatsApp & Instagram ain’t making anyone smarter. And basics without its competitor Google is a dead give away!

 

 

Full disclosure – I work for Inventum, one of the only carrier-class Indian router manufacturers. The company provides Broadband Network Gateways (BNG), DPI appliances, Routers, Billing & Provisioning systems for telecoms and Internet Service Providers. The views expressed here are my personal experiences as an entrepreneur in the Indian high-technology space.