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India's ‘Facebook ruling’ is another nail in the coffin of the MNO model

Ability to access 'net from mobe no longer considered a miracle

Reliance Jio could take advantage of rivals’ pain

Usage will swing towards an open, free access model, helped by the belated but real upsurge in public Wi-Fi build-out around India, and by other infrastructure initiatives being run by the web players, or under the government’s Digital India project. Wi-Fi was slow to take off in India – the country had an estimated 30,000 hotspots in summer 2015.

The established operators are heavy investors in that programme, but it remains to be seen whether they will be able to take advantage of the shift towards more open networks. Perhaps the most likely winner is Reliance Jio, the newcomer to the telecoms market, which is launching its 4G services this year (and has committed $39bn to Digital India). It has plentiful broadband wireless spectrum and its data-driven TD-LTE network could be a strong basis for a more flexible, web-style business model in India. It has the capacity to support open access and large numbers of virtual service providers, for instance; the network quality to deliver premium value added services; a relatively low cost base thanks to infrastructure and spectrum sharing deals; and growing activities in content, particularly video.

While some of its announcements, particularly promises of a 4G price war, look worryingly archaic, there are better indications too. For instance, Jio will use its TD-LTE network to backhaul its own Wi-Fi hotspots and small cells, and to support seamless access services. It plans to provide Wi-Fi for free, to help attract users to its brand new service, and to encourage offload, in order to save the LTE network from strain and to reduce its capex bills.

If it harnesses its assets cleverly, it could be a beneficiary of the fact that the business model for its more entrenched mobile rivals is looking increasingly tough. The MNOs will certainly see TRAI’s neutrality line as another assault, since exclusive deals with web partners have been an important element of their differentiation in a country where many consumers still regard their operator as their primary relationship when it comes to mobile devices and services.

Indian MNOs already have to cope with the lowest ARPUs in the world, and a series of regulatory decisions which they feel have limited their ability to improve revenues and profits by harnessing 3G and LTE data services. High reserve prices for spectrum, limits on the ability to roam (no carrier has nationwide 3G spectrum and only newcomer Reliance Jio has a national 4G licence), and the need to rebid for expiring spectrum franchises – all these have put intense pressure on the mobile business case in India, at a time when carriers need to invest heavily in mobile broadband build-outs to have any hope of ROI on those spectrum bills. Indian telcos have a collective debt burden of INR3 trillion ($43bn) partly because of high 3G spectrum prices.

This is driving the new interest in Wi-Fi. State-owned BSNL plans to spend INR60bn ($940m) on deploying Wi-Fi hotspots over the next two to three years, growing its numbers from just 250 in 2015 to 40,000 by the end of 2018, and integrating these with its cellular networks and OSS/BSS. Other operators investing in public Wi-Fi include market leader Bharti Airtel; Vodafone, which is running a pilot in dense urban centres; Tata, which is promising to launch 4,000 hotspots over the next year; and Idea Cellular, which has a soft launch in five cities.

While India may be an extreme example, similar discussions are going on around the world, and moves to equate zero rating with net neutrality will only hasten the shift to new web-like business models by cutting off one more route for MNOs to keep the walls up around their gardens.

In fact, TRAI never mentions neutrality in its statements, but the underlying arguments about zero rating and subsidies are clearly related. The viewpoint which swayed TRAI was that larger content and web providers would gain an unfair advantage from zero rating – they are more attractive to the telco partners, and they have the money to spend on data sponsorship and subsidizing access.

The US zero rating issue

This particular aspect of the internet debate is virtually on hold in the US, but will certainly not be gone forever. The FCC won some of its neutrality battles last year, toughening up on previous rules, while retaining some special terms for mobile operators (because of the issues of spectrum and capacity restraints), and leaving the door open for zero rating. However, while it may not address the issue head-on until after the election later this year, the regulator did send letters to AT&T, Comcast and T-Mobile in December, requesting more information about their zero rated video streaming services. FCC chairman Tom Wheeler said he would examine current zero rating and data cap exemption arrangements, to see whether any of them contravene the Commission’s ‘general conduct standard’.

However, this has become an increasingly popular tactic as the major MNOs engage in bitter wars for market share. Verizon recently introduced a free streaming element to its new Go90 mobile-first video service, which allows content from selected partners to be viewed outside of pay-monthly customers’ data allowances. This followed its previous announcement of ‘FreeBee Data 360’, under which content providers pay to send zero-rated data to its customers.

And T-Mobile attracted its usual blaze of publicity in November when it launched BingeOn, which allows content from 24 popular over-the-top video providers to travel on its network for free (to the providers or the viewers), though restricted to 480p video speed. This is a lure to attract users to its Simple Choice data package, or to upgrade from the most basis layers of that tariff, which do not support BingeOn. It is using a form of Wi-Fi-first, shifting video apps to Wi-Fi whenever the phone is in range of an access point which already holds the device’s credentials. Chances are this means that 80 per cent of the video traffic TMO is giving away is already paid for by the customer or the business they work for, in broadband fees.

A Stanford law professor and net neutrality expert recently claimed that BingeOn was probably illegal, arguing in an FCC filing that it “harms competition, innovation and free speech" and contravenes last year’s Open Internet Order.

Among the usual arguments about competitive advantage for selective providers, Barbara van Schewick also says that the technical requirements "categorically exclude providers like YouTube," which uses different protocols, and discriminate against providers which use encryption. "BingeOn allows some providers to join easily and creates lasting barriers for others, especially small players, non-commercial providers, and startups," she wrote. TMO says the technical requirements are necessary so that it can identify the content provider and therefore zero rate the data.

Van Schewick pointed to the example of TMO’s other zero rated service, Music Freedom, which was launched in 2014. It has grown from seven to 40 providers, but she claims that some smaller partners had to wait 18 months to be included, or were ignored completely.

Such debates will run and run. In Europe, there is a similar pause for breath, since the European Parliament decided to ‘pass down’ the zero rating issue to member states when it passed its neutrality legislation last year. One of the reasons commonly given for Europe’s relative lack of sound and fury about the issue, compared to user groups and operators across the pond, is that consumers are highly accustomed to accessing data and video by Wi-Fi or uncapped services. This is a conclusion which users will reach round the world – and the impact on established operators will depend whether they, rather than the Facebooks of the world, seize the initiative in expanding and monetizing the open, Wi-Fi-first wireless web.

Copyright © 2016, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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