A large focus of the #NetNeutrality debate has supposedly been on the stated aim of keeping the Internet free from being monopolized by individual corporate entities or oligopolies. While this might seem to be a fairly noble aim on the face of it, in the #NetNeutrality context, this is one of the most idiotic flaws in the entire #NetNeutrality argument. The rabble rousers are making the classic folly of the unthinking masses – missing the woods for the trees. Whether this is an honest mistake or deliberate misleading of the masses is yet to be seen.
In this article, @msreekan established that a free environment allowing for optimum competition amongst providers of various services is necessary for humankind deriving maximum benefits from the Internet. The #NetNeutrality activists are seemingly fighting for the same, but have completely misunderstood the fundamentals of this argument. They are wrong about their understanding of spectrum & the regulatory frameworks that govern its use worldwide. And since the use of spectrum by various entities is the essence of the internet, this flaw in underlying fundamentals misinforms their entire argument, thus making it grossly fallacious at all levels. It thus becomes imperative that this flaw be called out for the utter flatulence that it is.
The Internet is a network of networks, governed by a set of protocols known as the TCP/IP stack. Conceptually, it is no different from the local area network or the wi-fi network at your home/office. What does make it different though, is its scale & complexity. The Internet connects different types of computers, running a wide array of applications and a humongous amount of data is transmitted across it every moment. The infrastructure that makes up the internet can be classified into three major categories – the software (the TCP/IP stack & the various applications that run on devices connected to it), the hardware (physical infrastructure like computers, routers, switches, transmitters, receivers, satellites etc.) & spectrum (a natural resource that enables wireless data transmission). Various providers bring one or more of these infrastructure categories to the table, thus making up the Internet. Spectrum, being a natural resource, becomes a vital cog in the Internet jigsaw since it is finite but faced with a rapidly growing Internet. This realization lies at the heart of the myriad regulatory frameworks that govern the use of spectrum globally.
The myth of spectrum scarcity
If the federal government were put in charge of the Sahara desert, there would be a scarcity of sand there in 5 years.
While it is true that spectrum is a limited resource, the popular perception of it tends more towards scarcity than limitedness. This view is misinformed by a fallacious notion of spectrum being a rivalrous and depletable resource. The road analogy given for spectrum is symptomatic of this notion. However, the truth is that spectrum is non-depletable & instantly renewable. In other words, it remains in use only when it is carrying a signal. Once the transmission of the signal is complete, it returns to its original state. Thus, unlike a forest that loses its green cover after deforestation or a mine that loses its mineral wealth after mining, electromagnetic spectrum isn’t eroded through use.
In an analog world, there was the risk of signal interference (two signals on the same frequency could clash with each other, leading to a loss of data). However, with the advent of digital technologies, this risk can be completely mitigated by the introduction of commonplace technologies like encryption & lossless encryption as well as interference-filtering protocols into the system.
Moreover, the biggest hoarders of spectrum in today’s world are the governments themselves. Using the excuse of national security, governments across the globe habitually reserve a huge chunk of spectrum for themselves. In reality, there is no reason to do so in a digital world, as governments too can use the same technologies named above to keep their communications private.
So, the notion of spectrum scarcity is mythical & devoid of any factual correctness. The truth is that even though spectrum is finite, there’s more than enough for our needs if what’s available is deployed in an economically efficient fashion. And the deployment of a resource can be economically efficient only when it is informed by an organic price discovery mechanism. Even if one agrees, solely for the sake of argument, that spectrum is indeed scarce, it only strengthens the need for its economically efficient use.
A use of spectrum in the neutral Internet, as envisaged by the #NetNeutrality movement, is the exact opposite of an economically efficient use. The movement seeks to make the entire structure flat, which destroys not just the possibility of an organic price discovery mechanism, but also any semblance of competition between providers. The logical conclusion of such a flat structure combined with the spectrum licensing regime, will be arbitrary prices imposed on the consumer for the lowest common denominator of service offerings.
The spectrum licensing regime
The spectrum licensing regime is currently in vogue the world over as the only way in which spectrum can be put to optimum use for the common good of the people, the real owners of the resource. The argument provided is that such a regime allows for the best of providers to compete with each other under a regulatory framework. But that’s patently false. Not just does the spectrum licensing regime prevent optimum competition between the best of providers, it also paves the ground for other unintended consequences that enrich no one but the bureaucrats while harming everyone else.
Article 297 of the constitution of India vests our natural resources with the state. Pertinent to note here is that the state does not become the owner of these resources but a mere custodian. The collective ownership of these resources remains with the people of India. Clauses (b) & (c) of Article 39 mandate the underlying principle for the state’s scope of the said custody. In effect, what the constitution says on this issue is plain & simple – that the state is a custodian of our natural resources & the state should control them in a manner that leads to the common good at the same time, ensuring that they don’t get concentrated in the hands of a few.
Although the very premise of collective ownership of natural resources & this notion of the common good are unjust & economically inefficient, going there would be a digression at this point. So let’s leave that for another post, another day. Let’s assume the validity of the constitution’s stand on this for the purpose of this piece.
What does this constitutional brief translate to in the case of spectrum? That the electromagnetic spectrum in our atmosphere is vested with the state so that it can be utilized for the common good (better telecom services at affordable rates for the end user, who actually owns the spectrum) while ensuring that it does not get concentrated in the hands of a few (optimum competition in the telecom industry). But is this being translated into reality? Let’s explore this deeper.
Better services at affordable rates?
When comparitive adjectives are used to describe something, there need to be specific benchmarks to validate the comparisons. But that doesn’t seem to be the case here. When one says better services, the natural question that should follow is better compared to what? The quality of telecom services in developed economies is far superior to what we have in India. I chanced upon a twitter conversation a few days ago where someone was singing praises for a newly launched 4G service. The reason for the praise? A download speed of 2MBPS (which is 8 times of 2mbps for the unintiated). I leave it for you to decide whether a download speed of 2MBPS for a 4G connection truly qualifies as “better services” as envisaged by the constitutional brief.
Similarly, in the case of affordable rates, how does one decide whether the said rates are really affordable? Such deductions are theoretically impossible when one considers the fact that there is no organic price discovery process in place in the Indian telecom services space. On an average, most telecom services from major telcos are priced similarly. That the telecom regulator sees price ceilings as one of its major achievements should tell you why. No doubt that telecom services are cheap in India purely from the price quantum perspective. But when one takes into account the quality of service for those prices and the prices are viewed from the value for money perspective, there’s hardly any case for them to be termed cheap.
The spectrum licensing regime is at the root of this state of affairs. The inferior quality of service can be attributed in a large part to the massive license fees provided by the operators to the government. The same amount could have been put to more constructive use by the operators in infrastructure development. The government, on its part, claims that the proceeds of the spectrum auctioning process will be used in improving telecom infrastructure in the country. But if that’s the case, why not let the telcos do it themselves as per their business plans and convenience? And anyways, how much of government spending actually ends up being used for its stated purpose is common knowledge. The less said about it, the better.
Optimum competition in a market vertical can happen only when there are no entry or exit barriers for businesses. But the case in India is exactly the opposite. The entry barriers are enormous. A prospective provider needs to satisfy criteria that are arbitrarily churned out by the telecom regulator just to apply for a spectrum license. And the price for the license, if the prospective operator manages to grab one, is atrociously high, as the auction starts at another arbitrarily determined amount. What this translates to is a situation where only big players can gain licenses. There’s no space for the smaller operator who wants to operate in niche spaces or smaller geographies. Such players are relegated to the mercy of the biggies as far as spectrum use is concerned. What’s worse – these big players invariably form cartels and subject consumers to practices like the Fair Usage Policy, which downgrades the connection speed of consumers on unlimited data plans once they have used a specified amount of bandwidth in a billing cycle. Since such policies are thrust on the consumer across the board, the consumer is left with no choice but to comply with them.
Thus, it is clear beyond any reasonable doubt that the currently prevalent spectrum licensing regime is antithetical to the constitutional brief in this regard. It creates a closed ologipolic ecosystem of rent-seeking providers in cahoots with the political & bureaucratic classes that preys on the consumer instead of providing him with the best possible services while competing amongst one another. One might point out towards similar implementations of spectrum licensing regimes in the developed economies of North America & Europe. However, that point doesn’t carry much weight as the per-capita availability of spectrum is much higher in those countries than in India and the regulatory framework is much looser in those countries than in India.
In the few discussions that I’ve had with #NetNeutrality activists on the issue of spectrum licensing, many of them agree that the regulatory framework governing spectrum use is both unjust & economically inefficient. However, none of those agreeing wish to make it a focal point in their activism. Their argument is that such a goal is not very practical to pursue as the government backing out of spectrum is not a likely scenario. So, they want to ensure that the current oligopoly in place is restricted by regulation. This is an immensely troubling proposition on multiple levels. To begin with, it is driven not by principle but by knee-jerk whims & fancies of a vocal group. Second, its narrative is wrought with logically untenable tropes, which unfortunately, are emotionally appealing to the masses who latch on to anything that touches their heart, so to say. Third, it is prescribing the very same thing that caused a problem (regulation) as a remedy for the problem. In all, the stand of these activists reeks of intellectual dishonesty & wanton quackery. Sad, truly sad.