The tools available to communication regulators to ensure a fair, competitive market fall into two broad categories.  The first category is the ability to incentivise more competition and better behaviour in general.  This can happen through lowering the barriers to market entry, through opening up new means of service delivery, etc.  The second category includes all those remedial or punitive tools which seek to correct a problem in the market.  These tools may seek to prevent big telcos from exploiting their market advantage to the detriment of smaller players.

The most important thing to know about these two categories is that the tools in the first category are almost unvaryingly more  effective than those in the second.  I learned this years ago from Bill Melody, one of the wisest people I have ever met when it comes to understanding the role of the regulator.   Over the years, I have observed it to be true.  New players in the market shake things up, destabilise cozy alliances, force innovation, increase service offerings, all of which usually leads to great consumer choice and lower prices.  In contrast, remedial efforts at regulation are what operators are best prepared for. They are ready to confront restrictive or punitive regulation with their phalanxes of lawyers, playing out the familiar game of the four D’s:  Delay,  Deny,  Debate, and finally Deliver, usually partially so that the cycle can begin again.  For any remedial efforts on the part of the regulator, time is always on the side of the operator.

Why is this so?  It is because markets are complex adaptive systems and most remedial regulations attempt to treat the market as if it were a machine that can be tuned.  It is not surprising then when attempts to force the market to behave in certain ways leads to unexpected outcomes.  If we stop thinking of the market like a machine and more like an ecosystem, we realise that there are complex interdependencies and that intervening to fix one problem is actually quite likely to create others.  In contrast, allowing new players to enter and thrive in the market, forces them to continuously adapt to the changing conditions of the market,  accommodating changes, new information, etc and evolving to react to it.  At this you may be thinking, oh please, not another neo-liberal free-marketeer here to tell me the market shall set me free.

No, although I do believe the market is often the best way to foster innovation and competitiveness, I also believe regulation is necessary.  Sounds contradictory but it isn’t.  The way to manage a complex system is very different from one that is simply complicated.  For a great introduction to the management of complex systems, read A Leader’s Framework for Decision-Making by Dave Snowden and Mary E. Boone.  Ecosystems tend to break when rigid rules are introduced.  Instead, intervention is more of a light touch through the introduction of incentives or disincentives (attractors) which encourages or “attracts” the kind of behaviour desired.  They are introduced and monitored and adapted in response to the reactions they provoke.   There are also absolute boundaries to a complex system which do require strict rules but the use of these are a last resort when incentives fail.

If we apply complex system thinking to communication regulation then we would rarely choose to enforce a certain kind of behaviour where an incentive can be used.  It is only when the entire system is at risk that we would apply draconian measures.   Applying this to the zero-rating debate in India at the moment, we can ask the question “Do programs like Airtel Zero destabilise the entire system?”  My answer to this would be no, but even if you disagree with me, a complex systems approach suggests probing the system with incentives or disincentives first and examining the results before engaging in draconian measures.

Incentives versus Coercion

From the above we can see that in a complex system, incentives that act to attract behaviour change are simply more successful than hard and fast rules.  But there is more to it than this.  There is also human nature to consider.  Choosing to do something is profoundly different from being forced to do something.   If you are in any doubt about this, listen to economist Vernon Smith talking to Russ Roberts about his work and about Adam Smith’s book The Theory of Moral Sentiments.  In the discussion he quotes Adam Smith who wrote “Actions of a beneficent tendency, which proceed from proper motives, seem alone to require reward.”  Vernon Smith validated this statement in his own research demonstrating that voluntary actions of “beneficence” or good behaviour provokes the same behaviour in return whereas, in identical circumstances, but where good behaviour is enforced and others are aware of the existence of those rules, little or no reciprocity occurs.

Incentives provide the opportunity for operators to choose to do the right thing.  That choice is a powerful signal to encourage reciprocity in other operators.  It is not as neat and simple as a draconian rule but arguably far more likely to be successful in the long term.

If you were in any doubt as to the success of this strategy, you need look no further than the Internet.  The “rules” that govern many Internet services are called RFCs, which, it may surprise some to know, stands for “Requests for Comment”.  An RFC can be published by just about anyone and it will succeed or fail based on the extent to which others agree with it and find it useful.  It is not a rule.   Email, for example, succeeds purely on the voluntary ongoing agreement to format email messages in certain ways and for email servers to speak to each other in certain ways.   The Internet survives on the voluntary adoption of consensus about how data should be exchanged.  Part of the secret sauce of that success is the trust that is engendered by someone putting up a standard and offering it for others to critique.  Reciprocity is at the heart of the Internet and it is broken by strict rules.

Applying This to Zero-Rating

The job of the communication regulator is to ensure a level playing field but it is also to ensure universal (affordable) access.  Banning zero-rating may serve the first goal at the expense of the second.  So what might an incentive-based approach to this problem look like?  Assuming our goal is to have an approach to zero-rating that is transparent, nondiscriminatory and competitively neutral, are there incentives we can apply?  How might we  encourage organisations like FB, Flipkart, etc to publish the terms (at least to the regulator) on which zero-rating agreements are contracted with operators and to make them available to other operators on the same terms?  For small content providers, what incentives could be put in place to make it easier for them to offer zero-rated options?

Additionally, I think we would all like to know the impact of such programs.  What incentives might encourage content providers to publish usage data on zero-rating services?  If operators refuse to respond to incentives/disincentives, new ones might be tried but reserving draconian measures enforcing the right behaviour as a last resort.


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Posted by Steve Song

@stevesong local telco policy activist. social entrepreneur. founder of @villagetelco #africa #telecoms #opensource #privacy #wireless #spectrum #data