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neither licenses to deliver radio broadcasts nor consumer subscriptions to receive them. Essentially all transmission were “zero rated” by the network and content providers. Ultimately radio broadcasting supplanted news over the telephone and phonograph supplanted music over the telephone, having more favorable economic and physical properties to deliver information more cost effectively. However the mobile phone, digital technologies, digital advertising, and related business models have evolved to disrupt the entertainment business. Now people stream music on their phones though Spotify, Deezer, Pandora, and other services. Those app companies could not offer their services for free if they did not have a third party advertiser or employ a differential price model in which premium users pay, thereby subsidizing free users. It is not logical that TRAI can allow differential pricing across the Internet, but not for Internet access. TRAI’s should be well acquainted with differential pricing from its history. There were any number of differential pricing arrangements for telephony, whether volume discounts, toll free numbers, wholesale and retail pricing, interconnection, and so on. The growing trend in the world is to sell mobile access with content, particularly branded content. Mobile telephony used to be about voice and SMS. Differential pricing was the norm. Now we are moving to a world of data. Prices need to evolve if we want to effect this change. There is no reason to suggest that we have reached the end of innovation. Pricing and packaging themselves are forms of innovation. It is necessary that experiments are tried in India to allow the appropriate models to be developed. Consider the innovation of the sachet to market soap, shampoo, and detergent in small, competitively-priced amounts in India. “Sachet marketing” makes valuable products available and accessible to people on limited income. They will likely never buy the supersize box of detergent commonly sold in the US and Europe, but there is no reason why they should not have the benefit of clean hair and clothes. To be sure, as people acquire more income, they will increase their consumption of soap in larger packages (notably when they purchase a large washing machine). The situation with telecommunications and Internet is similar. Users in the US and Europe buy supersize Internet packages because they have multiple Internet enabled devices including standalone computers, television, tablets, and smartphones. They consume large amounts of video which require heavy bandwidth. It is not necessary to require Indians to purchase supersize Internet packages to enjoy the benefits of the Internet. They can purchase sachet size packages of connectivity to get started and progress as needed. But regulating sachet provision of the Internet would undermine the ability of India’s poor to enjoy the Internet today. Banning the provision of a sachet-size Internet packages, whether 2-for-1 deals, zero rated subcriptions, or however they are marketed, is akin to requiring all Indian to purchase supersized boxes of detergent. It makes no sense from the perspective of economics or human welfare. The point is that differentiated pricing is nothing new. If allowed, India can spawn a variety of new innovations. 10 | 7 January 2016 | Differential Pricing for Data Services
Let me address a few of the concerns raised by TRAI about differential pricing its consultation. TRAI notes, It may be argued that while these preferential tariffs offers effectively result in easy access to these websites etc., it may also result in making the entry of certain websites through the pipes of the TSPs more difficult. For example, a TSP or a group of TSPs could come up with such differentiated tariff offers wherein they disincentivize access to certain websites by putting higher tariffs for accessing them. In other words, accepting the principle that the TSPs should be able to provide differential and attractive tariff offers for different websites/content providers, whom they ‘like’, one is accepting the principle that service providers may also effectively prescribe nonattractive/prohibitive tariffs for some websites whom they may ‘not like’. (paragraph 12) TRAI has tools in its toolbox to make an evidenced-based assessment and the authority to enforce the law. TRAI need not conjecture about what could happen. Instead it can look at the offers in the marketplace, apply the relevant tests related to tariffs (transparency, non-discrimination to subscribers, and whether the pricing is anti-competitive, predatory , ambiguous, or misleading), and make the determination. However TRAI cannot make a legitimate determination without facts. It needs to allow the pricing plans to occur in order to collect data. TRAI also notes, On the other hand, several negative effects might ensue. Differential tariffs results in classification of subscribers based on the content they want to access (those who want to access non-participating content will be charged at a higher rate than those who want to access participating content). This may potentially go against the principle of nondiscriminatory tariff. Secondly, differential tariffs arguably disadvantage small content providers who may not be able to participate in such schemes. Such providers may have difficulty in attracting users, if there exist substitutes for free. This may thus, create entry barriers and non-level playing field for these players stifling innovation. (paragraph 14) The operative word is “might”. TRAI is likely familiar with the concept of Type I and Type II errors in regulation. Type I, mistakenly prohibiting activity that pro-competitive, is more damaging than Type II, mistakenly allowing anti-competitive activity. It is very difficult for TRAI to estimate the costs and benefits of any activity without real world information. On the other hand, if TRAI collects real world data, it can make a more realistic and credible decision. If TRAI discovers a problematic tariff, it can address it, but it is unwise to set ex ante bans because of the real and established problem of Type I errors. TRAI also suggests that a differential tariff disadvantages the small content provider, but my research on differential pricing around the world suggests the opposite. To be sure, both small and large content providers benefit from differential pricing, but small content providers even more so. Large content providers can already exploit economies of scale. As is established in the cable industry, much of the service price is composed of high fees demanded by large content providers 11 | 7 January 2016 | Differential Pricing for Data Services
Page 1 and 2: 7 January 2016 Ms. Vinod Kotwal, Ad
Page 3 and 4: My qualifications to participate in
Page 5 and 6: should encourage the supply, use an
Page 7 and 8: the the regulated price reduces the
Page 9: which operated for 50 years beginni
Page 13 and 14: waste of investors’ money that no
Page 15 and 16: approach or outlawing another. A dy
Page 17 and 18: Differential pricing strategies are
Page 19 and 20: Expand the market for devices, incr
Page 21 and 22: country where the Mobile Virtual Ne
Page 23 and 24: their own have no value, or will al
Page 25 and 26: Marketing is also a significant cos
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Page 29 and 30: INTRODUCTION Zero rating, the pract
Page 31 and 32: Arguments in favor of zero rating S
Page 33 and 34: It is puzzling why price differenti
Page 35 and 36: Brazil and Mexico follow with simil
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Page 39 and 40: eadily available. Not having the in
Page 41 and 42: can now get fair flat rate calling
Page 43 and 44: practice. The organization says tha
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