Why We Need Universal Basic Internet Now

In 2015, Facebook launched its Free Basics app offering a limited suite of Internet services for free in partnership with mobile network operators (MNOs) around the world.  This provoked widespread debate on whether Free Basics violated network neutrality principles that many believe (myself among them) are essential to maintaining the diverse and serendipitous nature of the Internet.  For me the answer was a paradox.  While I believe in the importance of network neutrality, I also recognise that affordability can be a more difficult barrier to transcend than the most impervious firewall. Lack of affordable access to the Internet may be the biggest network neutrality violation of all.  Free Basics directly addresses the issue of affordability and deserves acknowledgement for that.  Looking further back to 2010, when Facebook launched Facebook Zero, offering zero-rated access to its website, I applauded Facebook because they alone seemed to get the issue of affordability at the time. I argued then and still believe that lowering the cost of getting online will allow people the freedom to discover what they value on the Internet and to create new value through their interactions with others.  Matt Ridley captures the essence of this in his book The Rational Optimist when he says that:

Evidence suggests that cultural evolution depends on exchange and trade to bring together ideas in much the same way that genetic evolution depends on sex to spread genetic mutations, or in the case of bacteria, on horizontal gene transfer. When starved of access to a large “collective brain” by isolation from trade and exchange, people may experience not just less innovation, but even regress. The capacity for ideas to have sex on the Internet is likely to accelerate cultural evolution still further.

But that was 2010 and things have changed.  Facebook’s growing dominance has led to a situation where new users coming online can mistake Facebook for the Internet. Concerns have grown that Facebook’s news algorithms are increasingly isolating us from diversity of opinions by showing us things we “like” to see. It is also at the centre of the “fake news” controversy with widespread concern that its news and advertising system has been directly manipulated by external forces in order to influence public opinion.  There are also concerns about just how much personal information Facebook is capturing about its users and how that information is being used.  Finally, Facebook is no longer just Facebook, it is also WhatsApp, Instagram and probably a host of promising Internet startups that you haven’t heard of yet.  Facebook is a privately held company with no transparency in its operation or behaviour on which most of us are conducting our public and private conversations.  To say that all this is problematic would be the understatement of the decade.

Thus any system which purports to be open, as Free Basics does, but in reality creates a strong default toward the Facebook platform is part of the above problem.  Perhaps you think that defaults are irrelevant and the informed user can simply click away to something else?  Research suggests otherwise and if that weren’t bad enough, platforms like Facebook (although they are far from alone in this) are deliberately crafting engagement to hijack our attention and our choices.

Having spent much of my career advocating for affordable access, I find myself in a bit of a crisis of faith in what I am selling. I have gained so much from the Internet in terms of learning and social connection that I couldn’t conceive of my life without it and yet evidence that our very independence of thought is now potentially undermined by Internet platforms is deeply disturbing.  So what to do?  Tell the billion unconnected people in the world, nevermind, you’re better off without it? A part of me is tempted but I am too much a believer in the social nature of our humanity and the potential that connectedness represents to give up on the Internet.  The train may have gone off the rails but that doesn’t mean we should scrap railroads.  We need a better railroad.

That better railroad starts at the bottom of the pyramid.  Free Basics is not what we want but we don’t want to give up on affordability. Two years ago, I proposed a simple solution.  Why not just zero-rate basic rate Internet for all mobile Internet devices. That would allow people to discover value in the Internet on their own terms and create inclusion where it is most challenging, at the bottom of the pyramid. After all, Facebook doesn’t pay mobile operators to offer Free Basics, they underwrite the costs themselves.  For a mobile operator, why would you pay to entrench a digital giant?  Have you ever gotten one of those ideas that you just can’t let go of?  You try and try to poke holes in it, to dismiss it as unrealistic, to forget about it but it still keeps you awake at night.  An idea that seems so blindingly obvious that you can’t help but wonder why it hasn’t happened already.  That’s where I am with the notion of creating a universal, free, basic-rate Internet for all.

The article I wrote captured a modest amount of attention culminating in The Atlantic picking up the idea, followed by a modest flurry of social media activity and then nothing. I couldn’t see a way of moving forward and tried to put the idea to sleep but, like colicky child, it would not rest and I would bend anyone’s ear who was prepared to listen.  This led to a serendipitous conversation in Kampala in 2016 with Christoph Stork and Steve Esselaar of Research ICT Solutions, who I discovered were kindred spirits on this issue and had already been thinking along these lines themselves.  Having found common cause, we began to make plans.  We applied to the Mozilla Equal Rating Challenge and made it to the final round but didn’t win one of the top three prizes. Our proposal was radically different from the other contestants proposing community-led wireless projects.  I can only imagine it must have seemed too far-fetched to the judges.

Undeterred, Christoph led the writing of a research paper which makes a stronger and more detailed case for Universal Basic Internet (UBI).  The paper entitled “Universal Basic Internet as a Freemium Business Model to Connect the Next Billion” has just been published in the DigiWorld Economic Journal. A conference preprint is available.  We continue to advocate with regulators and operators for Universal Basic Internet.  I was inspired to write this article today because of recently published research by Indra de Lanerolle, Marion Walton and Alette Schoon entitled “Izolo: mobile diaries of the less connected.”  This work profiles the mobile usage of the least connected in South Africa.  I can’t recommend this work enough as it gives unique insight into the lives of those whose access to communication is not as obvious or stable as statistics might imply.  Here are a couple of users they profile:

Thandiwe spends about R12 (a little less than one USD) per month on data and most of the time she keeps the data off on her phone to avoid incurring data charges.  She’s a hairdresser and coordinates with most of her clients on WhatsApp but this has to be carefully managed in order to conserve her data balance.  Imagine if WhatsApp (or WeChat or Telegram or Signal or Viber or other messaging platform) were always on for her.  Messaging services are an enabling of any home-based or informal business.  Enabling UBI would be a business boost for everyone at the bottom of the economic pyramid not to mention enabling the discovery of other kinds of value on the Internet. Reading the profiles of the various people in the report, it is easy to see that a disproportionate amount of time is spent by the poor coming up with strategies to affordably use the Internet.  The necessity of these strategies takes up energy and time but it also excludes the casual exploration and ‘play’ on the Internet that leads to serendipity.

 

As a mother of two living in a rural area managing part-time local work, child support grants, Xoliswa fits my stereotype of black South African women who shoulder burdens that I find hard to imagine.  Up before dawn, maintaining local livestock, feeding the family, finding work, and generally keeping things together.  For the poor, the logistics of organising work and family life is proportionately a much bigger burden than for the people even just a little higher up the economic ladder who have regular jobs and who can afford data services that don’t have to be carefully conserved for essential use only.  The irony is that those who can least afford the extra time and effort are burdened with this extra work.  Making basic rate Internet available to Xoliswa won’t solve her logistical challenges but it is likely to make them easier to manage.

The point here is simple.  Free access to basic rate Internet, what we are calling Universal Basic Internet or UBI, could have a really big impact on the least connected.  We’re not suggesting this replace a national broadband strategy but while we’re waiting for broadband to reach everyone, this could make a real difference right now.

Everyone benefits from UBI.  Mobile network operators already know that voice and SMS revenues are shrinking and that the only way they can maintain their revenues is through growth of data services. UBI would help introduce a new generation of data services to those who may not yet see the value of the Internet.  And far better to offer a neutral basic Internet than a walled garden.  And who knows what the next really useful big platform will be. Perhaps, like 2go, it will come from Africa but if we don’t have a neutral Internet, we are unlikely to find out.  UBI is good for governments to because they will be able to legitimately offer online government services to people like Xoliswa without burdening them with data charges.

The Izolo: mobile diaries of the less connected study concludes with a set of recommendations.  See the report for a detailed explanation of each.

  • Design for low data consumption
    This is a really important recommendation but there may not be that much incentive for app designers to do so.  Introducing UBI would create a real incentive to design for low data consumption because of the massive additional addressable market available through UBI.
  • Design for ‘mostly off’
    Mobile phones are not really designed to be ‘off’ although new apps like Google’s Datally app which literally turn off mobile access except for apps you select seem to be a step in the right direction.  I think design for “mostly off” is a great idea but more as a tool to make the Internet more useful to those who live on the fringes of mobile networks and are often out of range.  For those within coverage areas, UBI seems like a better choice. Of course it is not an either/or situation.
  • The World Wide Web is a world away
    It is a hard truth that the web is not much of destination for most.  This may be partly due to affordability issues.  If you have an extremely limited budget, you are not going to waste valuable resources exploring the web for questionable return, you are going to go where you know, which at the moment is Facebook, WhatsApp, etc.  Lowering cost as a barrier to access increases the chances of stepping outside the mainstream to discover new things.
  • Pay attention to the solutions of the less connected
    The report does such a great job of highlighting this point.  What may look like a connected data subscriber as an ITU statistic is often someone clinging more tenuously to access than we imagine.  Understanding how fragile access is for the least connected should help point directly to the benefits of a UBI strategy.
  • Public WiFi will not necessarily increase access
    WiFi is not a replacement for mobile but it is a great complementary strategy.  If we have learned anything from access shutdowns and interruptions it is that we all need redundancy in terms of access.  We need both.  It is also true that WiFi may become the first connectivity choice in the future for many as WiFi infrastructure spreads and competes with mobile broadband on cost.
  • Zero-rating services may not lead to broader Internet use
    This is such a frustrating point to have to make… “may not lead to”.  The only reason we don’t really know the answer to this question is because Facebook, WhatsApp, and others engaging in zero-rating programs refuse to release any public data on their programs.  What, as they say, is up with that?

The Internet Is U-Shaped

When we think about the problem of achieving affordable access to the Internet for all, the discussion often focuses on broadband targets.  These targets are moving goalposts as infrastructure improves.  Broadband used to be defined at 256Kbps, now it might be 2Mbps or 5Mbps or something else depending on who you talk to.  Nobody wants to be seen as providing second-class broadband to their country.  And yet, the higher we set our targets for broadband, the more ambitious those goals become.  This is particularly true when we are talking about rural regions with variable population distributions with low ability to pay.  I have come to wonder whether simple broadband targets are the right strategy.  Perhaps we need something more nuanced.

First I want to suggest that slow Internet is still extremely valuable Internet.  Only very modest speeds are required for the basic operation of enormously population messaging services like WhatsApp, WeChat, FB Messenger, et al.  The growth of those services in the last few years has been nothing short of phenomenal.  It is with that in mind that I along with Steve Esselaar and Christoph Stork have been pitching the value of making 2G Internet access available for free to anyone with a data-capable phone.  You can read more about that idea at Zero-Rating: A Modest Proposal or watch the 10 minute pitch I made to the Mozilla Equal Rating Challenge last week.

It is an interesting thought experiment to ask yourself which is the more equitable strategy: connecting 80% of the population at 5Mbps or 100% of the population at 2G speeds.  The answer of course is that it is not an either/or question but that both strategies might be important.

And of course, 2G, while essential and extremely valuable, is not enough.  That got me thinking about where the value really exists on the Internet.  And for me the other place of high value exists at either end of the broadband spectrum.  I value small amounts of bandwidth for texting, emailing, etc and I value video, more specifically I really like YouTube.  I don’t like singling out a particular platform but no one else is delivering value the way YouTube is at the moment.  And at the low-end of the value proposition somewhere are top-heavy news sites like CNN.  I don’t mean to pick on CNN, there are hundreds like them; sites that deliver 20KB of reading material while taking up 5MB of capacity.

A word about YouTube.  I think YouTube is one of the pedagogical marvels of the decade.  There is virtually nothing you can’t learn to do on YouTube whether it is learning to be a carpenter, to fix your car, to write music, to be a magician, to fix electronics, to dance, to understand particle physics, the list is endless.  Chris Andersen of TED understood this six years ago in his talk on how YouTube is driving innovation. But it has gotten even better since then. Nadiya Hussein, who won The Great British Bake-off in 2015 is credited with learning to cook via YouTube videos.  Examples like this are legion. In communities where no affordable broadband exists, people travel to areas with free or cheap WiFi just to download YouTube how-to videos to take back to their communities.  Some even take requests.  I see this as well in my sons who are between ages 11 and 12.  They acquire skills on YouTube that frankly amaze me and they put more effort into learning there than they do in school because they are tapping into what they are passionate to learn about.  YouTube is also valuable because it bypasses a lot of local language and literacy challenges by allowing people to express themselves directly.  It’s not a panacea in this regard but it is a real vehicle for local expression.  Again I want to emphasise that it is not YouTube in particular that I am advocating for but the value that YouTube is providing right now.  What it might be in the future is another thing entirely.  Platform diversity is just as important as content diversity.

So if I can’t have the whole Internet, or if I have to decide what I get first, I would choose slow and fast Internet. My graph of Internet value vs speed looks something like this one on the right.  If my value framework is true, does that tell us something different about how to prioritise the development of Internet infrastructure?  For my it places a clear emphasis on getting everyone at least 2G access to the Internet but what does it mean we should do at the other end?  Conventional wisdom says invest in more broadband networks, 3G, 4G, 5G and so on.  In the last year WiFi networks have come to challenge that orthodoxy in Sub-Saharan Africa but, with a few notable exceptions, they tend to thrive in urban areas where there is existing high-speed backhaul infrastructure.  Getting YouTube or Vimeo or other video platforms to sparsely populated rural areas in an affordable manner is a real challenge.

That is why I am so excited about a pilot project that Google have in the Philippines called Google Accelerator.  Yes, not the catchiest name in the world but still an amazing project.  Google Accelerator is what I would call a micro Content Distribution Network (CDN).  You’ve heard of Akamai, CloudFlare, Google Global Cache and other CDNs that work at the network operator level and provide national-level caching for petabytes of content.  A micro-CDN works at the small organisation level.  Imagine a TV set-top box that is WiFi-enabled.  Now picture it with a 4 terabyte drive that is packed full of YouTube videos.  Anyone who connects to the WiFi access point of the set-top box gets instant high-speed access to YouTube.  Suddenly the high-value end of the Internet is available anywhere.  Of course the videos need to be regularly updated and that is challenge.  The ingenious part of Google Accelerator is that the content is refreshed via DVB satellite.  Pretty cool.  Google Accelerate is also remarkable because the solution is very affordable.  The components are commodity devices that might cost a few hundred dollars in total.  The challenge lies more in the refresh of the devices and what that costs.

Google aren’t the only ones who get the value of micro-CDNs.  Kenyan startup BRCK also seem to have pivoted to a content-based strategy in which their latest WiFi device the SupaBRCK which also has a hard drive specifically for local caching of Internet content.  This doesn’t mean there aren’t challenges.  Platforms like YouTube and others can be particular about allowing anyone else to cache their content.  Coming up with a licensing strategy that allows for independent micro-CDNs may be necessary.  Also, the trend to HTTPS encryption for all websites is a factor.  HTTPS encryption is great for blocking casual surveillance by bad actors but presents challenges for CDNs that can’t see what content is being browsed in order to cache it.  Large CDNs like Cloudflare solve this by decrypting and re-encrypting traffic as it passes through them but it is likely not the simple for micro-CDNs.

So what do you think?  Is the Internet U-shaped in terms of value vs speed?  Does that suggest different ways of prioritising infrastructure development?  This article was written partly as a provocation to test this idea that has been growing on me for a while. I’d love to hear rebuttals, affirmations, and/or alternative theories.

 

 

Resolving the Free Basics Paradox

Today the Indian communication regulator announced that it would forbid the provision of differential pricing for data services on the basis of content.  This decision effectively bans Facebook’s Free Basics initiative which offers access to Facebook and a suite of other content providers for free.  The issue of Net Neutrality, Zero Rating, and Free Basics in India has risen to prominence in the last year with a hugely popular grass-roots campaign to encourage the regulator to block such initiatives.  Facebook responded by adapting many aspects of their offering to accommodate public push-back, including renaming Internet.org to Free Basics, opening the platform to more content providers, and ensuring the program was open to all network operators.  But for many all that amounted to was putting lipstick on a pig.  The stakes of the debate grew higher as Facebook embarked on an expensive advertising campaign in support of Free Basics.  Facebook CEO Mark Zuckerberg made the issue personal by making a public appeal to Indians, asking “Who could possibly be against this?”  The answer to that became clear today.

Today’s decision is a victory for those opposed to “walled gardens” but it is something of a paradox that the Internet itself has become a “walled garden” between those who have affordable access and those who don’t.  If we are passionate about creating a level playing field on the Internet then we must be passionate about making the Internet affordable and accessible to all.  Among the many news articles lauding the decision taken by the Indian regulator, none were written by anyone without access. The disconnected are excluded from the discussion.

It is an uncomfortable truth that, in emerging economies, Facebook had already won the Internet well before Internet.org and the FreeBasics campaign began.  Facebook became the de facto Internet for many people because it did the most profoundly useful thing the Internet can do, connect people.  Connecting people to each other in meaningful ways is the secret sauce of the Internet and, for the last few years, Facebook has been best of breed at doing that.  The 16 million people who connected to Facebook in Nigeria this month alone are evidence of this.  From family connections to political movements, Facebook has proven itself to be an extremely powerful platform for people to share knowledge, act collectively, air their frustrations, you name it.  Mark Zuckerberg has a real point when he asks who could possibly be against offering this for free.

And yet, this is not ok.

At the micro level, Facebook delivers exactly what people want, connection and community.  At the macro level where Facebook’s algorithms decide which articles and which ads to display to users, things are more complicated.  Having a private company that connects over a billion people making decisions about how and when to display information to users is clearly problematic and we currently have no idea how to deal with it.  And of course not just Facebook but every Internet company that has gone to scale from Google to Uber to Spotify and many others.  One of the few antidotes to this problem is consumer choice, the ability to select a different platform if only to be able to see compare algorithms across platforms.  Without consumer choice we have no idea whether the beautiful peaches growing in our garden are genetically-modified or not because we have nothing to compare them to.

Given the choice between GMO peaches and nothing at all, most people would eat the peach.  Indeed, it is morally questionable to argue that those who can’t afford Internet access should forgo free access to Facebook until affordable “neutral” access is available to them.  I believe the only way to resolve this problem is to make the Internet generically free for all users or at least low-bitrate access to the Internet.  This is the essence of what I advocate for in A Modest Proposal in which I argue that connecting all phones to the Internet by default would make good economic sense for Mobile Network Operators (MNOs) thanks to the network effects they would enjoy from having millions more data users on the network.

Pre-paid users on mobile phone networks have always enjoyed being connected to the voice networks for free. MNOs don’t do this out of the goodness of their hearts but because it generates traffic, more people to call.  Also, a significant percentage of those users will keep an airtime balance which adds up to a lot of money held by the MNO.  A recent Forbes article identifying lessons from mobile money ventures in developing countries identifies the importance of offering the service for free as one of six key lessons.  It is hard to imagine that a free, always-on basic Internet for mobile phones would not lead to massive growth in data-rich services.  Low-bitrate data for everyone, why not?


Photo (Between Scylla and Charybdis) courtesy cea+

Zero-Rating: A Modest Proposal

Imagine a world where all phones were automatically connected to the Internet, at no charge. Is this an idle fantasy?

The current worldwide debate about Zero-Rating and Network Neutrality has brought the issue of affordable Internet access into sharp relief.  I recently came back from the Internet Governance Forum (IGF) in Brazil where there were no less than seven sessions on Zero Rating and Network Neutrality.  Internet.org, now renamed as Free Basics, continues to be a subject of often emotional debate as to whether it brings greater benefits or harms to those who use it.

This has got me thinking about how we value the Internet and how fast the Internet needs to be in order to qualify as ‘enough’.  In one of his sessions at the IGF, Vint Cerf pointed out that we use the word Internet as if it meant the same thing to everyone but this isn’t really true.  A feature-phone user browsing the Internet via Opera over a 3G connection does not have the same experience as the San Francisco-based developer on gigabit fibre staring at his/her dual 26 inch monitors.

The “all bits are created equal” debate in Network Neutrality doesn’t really take into account our varied experiences of Internet.  On a personal level, it is clear that some bits are more valuable to us than others.  A one or a zero that indicates whether your loved one is alive is worth infinitely more than four gigabytes of the latest Hollywood movie.

non-linear-broadband-value

For illustration only. Your priorities and speeds may vary.

This leads me to question the assumption, implicit in most national broadband strategies, that the value of Internet increases more or less proportionately with increase in speed. The reality is that even very tiny amounts of data can be enormously valuable and that the value of access goes up dramatically with even a little access and then tapers off.

From a value maximisation perspective then one might conclude that it is more strategic to make a priority of ensuring that everyone has at least some connectivity as opposed to some percentage of the people getting fast Internet.

This got me thinking about the spread of mobile telephony in sub-Saharan Africa.   The Pay-As-You-Go (PAYG) model implemented by mobile network operators (MNOs) meant that it didn’t cost any money to be part of the network.  All phones with a SIM card automatically register on the network and are callable on the network.  A credit on the network is not required.   Why has this turned out to be a such a phenomenally successful model?  Because MNOs recognised that each and every person connected to the network added value to the network whether they made a call or not because they increased the size of the callable network, thereby increasing value to paying users.  This phenomenon is known as network effect and while it may have been a somewhat esoteric concept twenty years ago when the mobile industry started, it is now well understood by any Internet entrepreneur.

Registering and managing non-paying customers on the phone network is a significant operational and financial overhead for MNOs, especially now with mandatory SIM registration being more common. Connecting phones to the network for free has obviously proven to be worthwhile.  The increase in size of the overall network also helps to transform those non-paying users into paying ones as they see more and more value from the increased number of people to connect to.  It is a positive cycle.

This brings me back to an approach I suggested last year: low-bitrate, generic zero-rating.  What if it were normal for all MNOs to offer low-bitrate, generic Internet access in the same manner that all MNOs connect phones to their network?  Let’s imagine that Internet data were enabled by default for free at GSM (2G) speeds of only 9.6kbps to all users.  Let’s also imagine that it is a best-effort service that might not always achieve that speed or may have terrible latency, a bit like real 2G service.

A million users consuming 2G at a modest 4.8kbps would consume about 4.8gbps per second of capacity.  Looking at the adult population of South Africa of roughly 35M people, if everyone were consuming that data on their phones at one time, it would amount to 168 gbps of capacity across the entire country.    Let’s put this in the context of South Africa’s undersea fibre optic cable capacity, which currently has an aggregate design capacity of 17 tbps, soon to reach 22 tbps when the ACE cable lands.  Free 2G data for all would consume less than 1% of the design capacity of the international submarine cables landing in South Africa.

That is a very rough and inevitably flawed calculation.  It doesn’t take into account whether the existing mobile networks could handle this capacity with their current spectrum allocations and technology.  It also doesn’t take into account backhaul limitations where terrestrial fibre is not available.  But we do know that MNOs are actively investing in upgrading their networks, which would make this amount of data an increasingly small percentage of their network traffic.  But the value to individuals would not diminish.  Generic low-speed zero-rating of mobile networks could have multiple impacts. It would:

  • Spur adoption of data services.  As Clay Shirky has so eloquently put it, “If things are expensive to try, people will hold back from trying them and they’ll spend all their time trying not to fail. If the cost of experimentation falls though, and I mean falls precipitously, then people will spend a lot of time experimenting, and instead of not failing, the goal becomes to fail informatively to learn something from the things you tried.”
  • Legitimise data as a means of government/civic communication.  If everyone can access basic data services just by having a feature/smartphone, then it is easier to justify government investment in e-services.
  • Decrease the digital divide.  Democratising access to data through free low-bitrate access would create a true on-ramp to the Internet and its vast diversity of services and interactions.
  • Open up vast new markets to data service providers.  The network-effects of millions of new data users would dramatically increase the value of data services in general.
  • Spur innovation in low data consumption applications.   If you know that you can reach *everyone* at a very low speed, it would spur both the public and private sector to develop applications that consume less bandwidth in order to reach more people.  Indeed Facebook is already doing this with their application development.

I’ve asked you to imagine a world where mobile phones connect to the Internet in the same way that they simply connect to the mobile phone network, where there are no data charges for very low data speeds.  On the surface at least it would seem that the benefits to both the public and private sector would dramatically outweigh the costs of doing this.  If we accept that the value of access is not directly proportional to speed of access and that there is huge value in even small amounts of data access, then perhaps a national strategy ought to focus on getting everyone connected at a modest, free rate as opposed to say 80% of the people at say 2Mbps?

It will take more detailed cost modelling to really dig into this idea but I cannot help but think of more consumer benefits at every turn.  Even for globe-trotting travellers.  Imagine being able to pick up basic text messages and emails as soon as you get off the plane in a new country without having to search for a WiFi hotspot or wonder whether you dare turn on roaming.  Always-on mobile data could open up new possibilities for mobile payment services.

Some operators like T-mobile in the US already offer 2G roaming but only for postpaid customers.  What if it just made good social and economic sense to have basic rate Internet enabled for all mobile phones?


Note:  Percentage of total South African traffic should be less than 1 percent not .01 percent as I originally wrote.
Made possible in part through support from the Network Startup Resource Center
Image inspired in part by Metcalfe-Network-Effect 

Zero-Rating, Net Neutrality, and the Regulatory Toolbox

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.


Image source:  Provenance unknown.

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