Net Neutrality and Telecom Pricing

Telecom pricing rests itself on net neutrality and thus any effort to change or discourage it should be quite compelling. The basic argument in the debate about net neutrality is that the latter though encourages innovation it discourages all telecom operators to make any infrastructure investments as they are not able to even recover costs. Thus, the primary trade-off is between innovation and investment.

• The basic version for net neutrality is that ISPs should charge all internet content equally without any discrimination for specific content or higher speed. It is this advantage which has made the boom possible for websites/apps like Facebook, WhatsApp etc. Thus, the growth on such a scale has made scope of even tiny disruptions impossible. The economic activity generated expands non-linearly and thus any additional investment generates a high social impact. Thus, it can be said that Indian states with a penetration of 25% had more impact than the ones which had relatively less penetration i.e. growth impacts are amplified by the network impacts. These considerations have important impact on the way internet shouldbe provided.
• Any regulatory intrusion in the domain of net neutrality is useful to avoid any exploitation of consumers who end up on the mercy of ISPs and also keeps a check on the monopolisation by ISPs. It will also prevent ISPs to discriminate on the basis of prices. It was during the days of fixed networks, Ramsey pricing was used which is a form of price discrimination was used for cost recovery. Usage was directly proportional to pricing.

Eliminating price discrimination will also mean determining its impact on social welfare. Any other scenario will mean favouring a few profit hungry internet service providers and ignoring interests of millions of internet users.