(Originally posted at Opinion Junction)
Our attempt should never be about shaping specific market outcomes, instead we should constantly endeavour to enable entrepreneurial experimentation.
Takshashila has submitted an interesting policy prescription, it explains an approach to the question of differential pricing for data services. Addresses several good points, including a recommendation for telecom licensing reform to improve market competitiveness, which makes absolute sense. Here we could take a closer look at one of their other contentions, which states that an enforcement of differential pricing based only on QoS (Quality of Service) is an overall beneficial practice. To give a gist : QoS regulation essentially forces ISPs to offer only plans structured on a set of channels, and these channels correspond to various quality levels. Differential pricing across these channels are allowed, but not across contents. They also state, “TRAI can regulate the” set of these “QoS classes created”. And within such a framework of regulated plans, user preferences should drive the market. The recommendation also includes minute details related to how cost can be reduced by introducing a credit based system. The full paper is only six pages, and worth reading.
Enforcing the recommended QoS framework does come with its own costs. For example, within a particular QoS category, ISP should either provide all the data services or none. This actually reduces flexibility and increases the cost, hence limits the options available to a consumer. In that sense, a categorical claim stating that these regulations are “non-discriminatory” seem incorrect. While it does seem beneficial to content providers, at the same time it’s forcing some additional constraints on the consumers.
Also, market competition is not just about price differentiation, it is also about differential structuring of services to best satisfy various dispersed consumer needs. But here service differentiation is being allowed only within this narrow regulatory QoS framework, which seems rigid. Eventually, market competition should be allowed maximum scope for experimentation. To paraphrase Hayek, ‘market poses a problem of how to secure the best use of ideas and resources known to any of the members of society, for ends whose relative importance only these individuals know’. Such a productive discovery of dispersed and contextual consumer expectations mandates experimentation with diverse products. As a developing country we simply cannot afford to impose restrictions on such entrepreneurial experimentation or to the full use of their technological expertise.
Laws should eventually be about providing that essential framework to experiment and structure private resources to best satisfy consumer demands. But with QoS, the legal framework is being tailored towards enforcing a particular homogeneous pattern of resource allocation. A sort of a centralized blueprint. Actually at any given instant, it’s impossible to aggregate the real dispersed consumer value preferences, hence it’s also logically impossible to state that a specific structural formation would be the most beneficial one for the society. We need to allow various competing arrangement and ideas to emerge through a bottom-up process. Competition is valuable only because it discovers yet unknown improved ways of doing things. Caging this discovery process into a predetermined organizational structure does not accomplish that.
Actually, even from the perspective of content providers, we cannot state with absolute certainty that enforcing QoS only plans is beneficial. Because consumers see value in actual content, not QoS, which is merely a means towards that content. They also demand it at an affordable price. Some consumers are looking for unlimited access, while others might want varying degrees of limited access plans spanning both QoS and differential content spectrum. Gaining customers is about providing that most ideal subjective trade-off preferred by that particular group. Without providing that most suitable ISP plan, there will simply be no content consumption. Which only makes everyone worse off. In that sense, regulations which direct resources towards a particular structural outcome will diminish the available scope for alternate productive arrangements. Actually, markets exist to constantly discover such productive transactions. All policy prescriptions should prioritize individual autonomy and widening of consumer choice. Rest will automatically fall in place.
Finally, market innovation has to be an all round process. Prosperity depends on productive employment of all the non-permanent resources. In this case, it cannot be just about content providers, ISP infrastructure and consumer resources are also valuable. Hence, all the links in this extended supply chain should be allowed the autonomy to discover the most productive employment of their own resources. Such a perpetual discovery process is about growth and hence eventually inclusive. So, our attempt should never be about shaping specific market outcomes, instead we should constantly endeavor to enable entrepreneurial experimentation.
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