Five Ideas That Should Guide a Net Neutrality Regime in India, The Wire, 13 February 2017

https://thewire.in/108062/contextualising-net-neutrality-five-ideas/

Five Ideas That Should Guide a Net Neutrality Regime in India

BY VIVAN SHARAN AND PRACHI ARYA ON 13/02/2017 • LEAVE A COMMENT

A GOLDEN MEDIAN BETWEEN AN EX-ANTE AND EX-POST APPROACH IS POSSIBLE TO ACHIEVE, IF FLEXIBILITY IS AT THE CORE OF TRAI’S REGULATORY ETHOS.

The Telecom Regulatory Authority of India (TRAI) expects to conclude public consultations on ‘net neutrality’ this month, culminating a process that began last year, with the regulator prohibiting “discriminatory tariffs for data services on the basis of content”. While considered a victory for neutrality evangelists, who want the internet to be free of monopolistic interests, it left several questions unanswered.

The central question is: under what circumstances can a network operator discriminate against applications or content available on the internet (a network of networks)? TRAI has the motivation to resolve this and other related questions, and the power to issue quality of service (QOS) regulations for telecom services (that run most Internet networks in India), as well as wider policy prescriptions that the Department of Telecommunications (DOT) may subsequently actualise.

In the latest round of consultations, it has emerged that TRAI is keen on contextualising its prescriptions, to fit India’s realities – which is a good sign. To this end, we propose that there are at least five fundamental realties that the regulator should consider (a) the prospects of consolidation in the telecom sector which may lead to long overdue rationalisation of revenue streams, (b) the absence of competition at the last mile of the distribution chain, (c) the imperative to connect the millions of unconnected Indians to the Internet, (d) the preponderance on wireless connectivity which requires greater traffic management (QOS) than wired connectivity, owing to limited spectrum and (e) technological ‘convergence’ of content delivery platforms. The following five ideas derive from these five realities, not necessarily in sequence.

First, innovations in network technology must be allowed to keep pace with consumer demand trends. Today, a large proportion of demand for data is linked to seamless access to video content, which accounted for 65% of total Internet traffic in Asia in 2015. And India’s inherent advantage in producing video content, with a vibrant media and entertainment industry, is clear. Technology has enabled entrepreneurs to develop content without investing heavily in production equipment. With low entry barriers, video content can become ubiquitous, and creative industries can potentially flourish with convergence of delivery platforms if requisite policy support is forthcoming. Therefore, even as the network will evolve over time, network regulations must be light touch and demand-led.

Second, a golden median between an ex-ante and ex-post approach is possible to achieve, if flexibility is at the core of regulatory ethos. Traditionally, internet service providers (ISPs) have favoured the ex-post approach as it makes strategic sense for large regulated companies: it gives them greater room to manoeuvre in terms of QOS, and large companies have the capacity to pursue resource-intensive litigation. Content providers on the other hand, have more to gain with a stronger ex-ante approach as it provides market certainty and predictability. Specifically, such an approach can help content providers avoid expropriation by ISPs (downstream monopolies beset the broadcasting supply chain for instance, a fact acknowledged in previous TRAI consultations), while ensuring some transparency in otherwise opaque traffic management operations.

Regulations need not reflect this binary. In fact, it is undesirable to emphasise one approach over the other. This would make little sense considering the pace of change in technology and economic incentives versus the inherent rigidities associated with regulatory precedents set in courts. TRAI must recognise that old norms may not fit next-generation innovations and that courts are not the best place to decide technological pathways. Any ex-post-facto approach should rely on technical expertise, extensive peer review and investigation. At the same time, a rigid ex-ante approach defies the very virtue sought to be protected by proponents of a free Internet – unfettered innovation.

India should adopt bright lines for ex-ante regulation, that should in turn be malleable and reflect the needs of a future population. That is, at the heart of the regime should be a recognition of the need for QOS, subject to regular review. This would ensure that broadband demand is not artificially suppressed owing to inadequate infrastructure; at the same time, norms should not encourage de-facto reliance on QOS, over improvements in network infrastructure. Net neutrality principles should instead help test whether a purported discriminatory practice is a deliberate attempt to reduce the quality or availability of a service, and responses to each principle should be verifiable.

Third, in lieu of verifying whether a practice is deliberate or not, TRAI must collaborate with independent actors for big data analysis. Statistical tests can be applied to samples of data received from ISPs as well as users, to ascertain the reasonability of traffic management practices. For instance, a practice may be reasonable, if data proves it to be exceptional and temporary. There is little doubt that such a measurement is not easy and will necessarily involve monitoring agencies and end users – but at least the scarcity of data is not a binding constraint, as operators maintain meticulous QOS logs. Although difficult to envision today, it is expedient to explore a co-regulatory model wherein end users – individuals or institutions – can empirically verify the claims of ISPs. Without such recourse, any transparency and disclosure requirements for checking adherence of networks to ex-ante principles will be unverifiable and, therefore, redundant.

Fourth, an effective network neutrality framework must centre on efficiency, which is where engineering and economics converge. For instance, large content providers are increasingly reliant on content distribution networks (CDNs) which are clusters of servers that bring content geographically closer to consumers, and concomitantly provide better QOS. There is a concern that CDNs can lead to de-facto prioritisation of data flows. There are two ways of looking at this: the first is that CDNs allow larger content providers which have deep pockets to invest in delivery infrastructure, to capture markets. The second, more palatable answer is, that while all data of a similar class should flow equally in a network, data that is closer to consumers, should naturally reach faster. Enhanced efficiency should not be penalised. Only economies that embrace Schumpeterian disruptions, that help deliver goods and services to consumers cheaper and faster, both online and offline, can remain globally competitive.

Fifth, following from the CDN example, it may also be inferred that a general principle could be developed wherein organic prioritisation of data flows is acceptable whereas forced prioritisation (based on modification of traffic protocols) is not. That is network engineers should not unreasonably discriminate between data flowing from point A to point B. If a third point C is physically closer to point B, the data from point C should be treated the same as data from point A, and it should organically reach the consumer faster. Such a framework may foster much needed last mile competition by lowering transit costs incurred by smaller ISPs on core networks.
The global discourse on net neutrality is by no means settled. Even as India makes its first holistic attempt to create a suitable regime, there are apprehensions that the US, under a new administration, may undo its extant framework which had set a benchmark. Nonetheless, perceived positions of other countries should not be a deterrent as our appetite for data is growing exponentially and a nuanced regime balanced by Indian realities can spur access and innovation.

Vivan Sharan is a Partner, and Prachi Arya is Head of Legal, at Koan Advisory Group, New Delhi.

Moving Towards a Secure Digital Economy, Mint, 26 January

http://www.livemint.com/Opinion/YUSILwlMQ2GXqcB8NF86kK/Moving-towards-a-secure-digital-economy.html

Moving towards a secure digital economy

The velocity of digitisation and technology adoption must necessitate a response different from what was the norm in the ‘public sector era’

Samir Saran and Vivan Sharan

Even as incessant political bickering is polarizing opinion on demonetisation, India is making a significant transition to a digital payments ecosystem. This project endeavours to breach the urban-rural divide, geographical exclusions of the real world, and income criteria that privileged only a few with access to certain private and public services. This new digital payments ecosystem is brutal in its attempt to alter the way India transacts, trades and is taxed.

A wider adoption of digital payments will invariably change the dimensions of risks, crime and security as well. If pickpockets were a common menace some decades ago, cybercriminals may dominate conversations in the days ahead as they eye digital and online transactions. While the “pickpocket” had to select a relatively “fat target” to make the effort and risk worthwhile, the cyber thief will have a low-risk environment (lack of forensic capabilities, human capacities and attribution challenges) and an expansive reach of technology that will make even “petty pickings” attractive. And although cybercrime will affect us all, it will harm the poor disproportionately. It could ravage the small savings of many, deprive them of their meagre means and, most importantly, result in erosion of trust in the financial ecosystem currently being built. It is, therefore, important that the government pay heed to small fraud.

An early warning of this was provided by the frisson of panic that followed the cautionary message from the newly launched Bharat Interface for Money application (BHIM app) on 4 January 2017: “Users please beware: Decline all unknown payment requests you may get! We will work on an update, which will allow you to report spam.” This response is inefficient and leaves the ecosystem vulnerable to malicious intent.

Governments around the world and here in India must respond to this new dimension, where “petty cash is big money” and digital pickpockets pose a range of threats to individuals, institutions and economic stability itself. Most governments have left themselves with little time to create the requisite mitigation capabilities. The velocity of digitization and technology adoption must necessitate a response from policymakers different from what was the norm in the “public sector era”, where Centrally controlled banks and enterprises offered a modicum of stability, privacy, and security (with less efficiency). To achieve this, a comprehensive approach for securing the digital ecosystem must be devised and some actions must be taken immediately.

First, there are a multiplicity of stakeholders operating networks and tools that pose varying degrees of risk. This, in turn, demands differentiated security responses. These include the Reserve Bank of India (RBI)-run National Electronic Funds Transfer (Neft) and Real Time Gross Settlement (RTGS), the National Payment Corporation of India’s (NPCI’s) Immediate Payment Service (IMPS) on which the Unified Payments Interface (UPI) currently operates, traditional card networks, mobile payments solutions, various banking apps. In a report released in December 2016, the Union ministry of finance’s committee on digital payments suggested a hierarchical approach based on the level of “systemic risk” posed by different tools and networks. This must form the design basis going forward.

Second, while industry is consulted by expert committees such as the one referenced above, an inclusive multi-stakeholder consultative process must become the norm for policymaking itself, to avoid arbitrariness. This can be done by instituting multi-stakeholder consultations that are transparent and inclusive. This is the model India has agreed is best suited to govern the Internet internationally, and it’s time to adopt consonant processes at home.

Third, while the “mobile” is being hailed as a replacement for physical wallets as well as a proof of identity through its widespread use in second-factor authentication of digital payments, government and users should be circumspect about the risks involved. For instance, there is evidence to suggest that distributed denial-of-service (DDoS) attacks—in which a multitude of compromised systems attack a single target, causing denial of service for users of the targeted system—are increasingly targeting the applications layer rather than the network layer of the Internet. In layman terms this means a sophisticated mode of cybercrime is being unleashed on unsuspecting users of mobile applications and popular software.

Mature hardware-based solutions, such as tamper-proof Universal Integrated Circuit Cards and Embedded Secure Elements, are being tested against the latest forms of cyberattack. Software-based solutions such as Host Card Emulation are also relatively secure but require upgrades through the cloud, placing large data demands on the user and testing the service capabilities of the issuer.

Globally payment solutions that have been able to integrate hardware- and software-based security exist, but domestic mobile payments providers are relying largely on software-based security solutions. And while the Indian government’s Computer Emergency Response Team, RBI and NPCI are undertaking security audits of payment solutions, it is important that users be given standardized information to make informed choices, particularly when the digital adoption drive is at its height.

Lastly, it may be useful for the government to think of the digital payments ecosystem, now anchored by the NPCI, as analogous to the Internet. And much like the Internet, the National Financial Switch (the infrastructure backbone of all Indian ATMs, operated by the NPCI) must acquire robust redundancies offered by private-sector partnerships in order not to be a vulnerable single point of failure—which can potentially be compromised by self-styled “legions” of hackers. The NPCI should be managed through multi-stakeholder groups that can help with standard-setting, and can ensure that the payments ecosystem serves the common citizen, making even a small transaction online.

Samir Saran and Vivan Sharan are, respectively, vice-president at the Observer Research Foundation and founding partner at the Koan Advisory Group.

"Narendra Modi must ensure demonetisation is not seen as increasing government’s role in citizens’ lives", Economic Times, 27 November

http://blogs.economictimes.indiatimes.com/et-commentary/government-must-ensure-that-demonetisation-is-not-seen-as-its-increasing-role-in-lives-of-citizens/

Narendra Modi must ensure demonetisation is not seen as increasing government’s role in citizens’ lives

By Samir Saran & Vivan Sharan

By the demonetisation move, Prime Minister Narendra Modi has enacted a strong policy that has removed nearly all currency from circulation, without an immediate recourse to its replenishment.

This move again positions him as a disrupter of the status quo, an attribute increasingly being endorsed by voters across the globe. If he has to carry this disruption to its logical political outcome, significant support will need to come from the ‘JAM ecosystem’ (Jan Dhan, Aadhaar and Mobile).

This political gambit puts into sharp relief the importance of what the government does next. Its job has just begun and uncertainty about long-term outcomes will persist until complementary steps are taken. Since the central proposition put on the table is that business as usual is no longer acceptable, the important question is: what next? To answer this, it is useful to first benchmark India’s cash economy against ‘emerging market’ peers.

In terms of ‘narrow money’, which includes coins and notes in circulation and other currency equivalents easily convertible to cash, India has a higher cash-to-GDP ratio (11.77%) than all its Brics counterparts. There are also extreme benchmarks set by advanced countries such as Sweden, which aims to go completely cashless (something that may be neither desirable nor doable in India’s case), and has a cash-to-GDP ratio of close to 2%.

Within Brics, South Africa is a standout performer with a cash-to-GDP ratio of under 5%. Like India, South Africa has well-developed telecom networks, large and rising number of internet users and a thriving innovation culture in digital payments. The additional South African ingredient that seems to be missing in India is a supportive institutional environment. Modi’s litmus test will be whether he can overcome legacy issues that plague India’s institutional ecosystem that inhibit the evolution to a cash-light economy.

One such issue is the over-reliance and unhealthy prioritisation of the government-run digital payments solution to the detriment of private service providers. Modi’s promise of ‘less government, more governance’ should certainly not include the perpetuation of a digital payments ecosystem dominated by government-backed entities. Instead, it must focus on building partnerships that leverage entrepreneurial energies outside of the government. Digital payments currently constitute only around 5% of all consumer transactions and need a dramatic and exponential ramp-up.

While the RBI has adopted a digitalfocused ‘Payments and Settlement Systems Vision’ in June, there is no mentionof any competition issues that should ordinarily be considered when safety, efficiency and universal access are stated goals of this vision. Further, there exists a conflict when the government-sponsored digital infrastructure backbone, the National Payments Corporation of India (NPCI), also establishes the terms of engagement of the emergent digital payments ecosystem. The NPCI promotes the RuPay card, which has been pushed out to most citizens who have opened Jan Dhan accounts.

After demonetisation, the NPCI has waived switching fees paid for all RuPay issuing and acquiring member banks for points of sale and e-commerce transactions (till the year-end), ostensibly to promote its own product. Here, the licenser, regulator and the business entity are one, and are perversely gaming politics and policy. This is not avirtue for any market seeking to promote itself as business-friendly.

But it’s more than just the ‘ease of doing business’ that is at stake. It would be clear to incumbent card networks that they may have lost the opportunity to service the 800 million who make up the bottom of the economic pyramid to the supply-led RuPay proposition. But the government must also recognise that an army of stakeholders will be required to increase both the volume and value of digital transactions. For instance, there is negligible payment acceptance infrastructure in rural areas, despite RuPay’s dominant presence over the last few years.

The immense task of ensuring ubiquitous acceptance infrastructure is not something government can achieve alone. RuPay will need to work with its counterparts. Risks that come from having created a single point of infrastructural failure through the NPCI are immense and real. One such threat materialised when cyber attacks were witnessed over the last few months that affected 3.2 million debit cards.

GoI must ensure that demonetisation is not seen as a time for increasing the role of government in the lives of citizens, rather as a moment to rationalise it. The government has the responsibility to balance security, access and competition as the digital economy evolves. This has to be done through sensible policies and regulations, not through predatory business interventions.

(Saran is vice-president, Observer Research Foundation, and Sharan is founding partner, Koan Advisory Group)

DISCLAIMER : Views expressed above are the author’s own

DISCLAIMER : Views expressed above are the author's own.

Government of India should not Make in India, Column in Mint, 7 Oct 2016, Vivan Sharan and Samir Saran

http://www.livemint.com/Opinion/eLQGanpcx6DGwMDSFMCFNI/Government-of-India-should-not-Make-in-India.html

India is recording historically high investments in technology-oriented industries such as telecom and over the top (OTT) services that ride on telecom networks such as financial technology and e-commerce.

The latest infusion of Rs47,700 crore by UK-based telecom giant Vodafone Plc. into its Indian arm is indicative of the fact that the Indian market remains much coveted despite the headwinds to global growth. Manufacturing investments are also targeting the tech-hungry Indian consumer.

Chinese telecom giant Huawei will begin manufacturing smart phones in India this year, the 40th such manufacturing investment in the country in the past two years alone. With such investments and parliamentary consensus on the GST, one may be tempted to conclude that ‘Make in India’ is on track. This may be premature.

India’s transition from an agricultural economy to a service economy has posed a conceptual challenge for many who see industrialization as the only way to create jobs. Industrialization requires best-in-class infrastructure, cheap energy and a skilled workforce, all impossible prerequisites to fulfil in the short or medium term. But the ‘digital economy’ offers a way out.

While productivity gains from automation and digitisation have driven industrial growth in advanced countries over previous decades, their effects are not fully felt here.

The digital economy can potentially mobilise millions of Indians, constituting the ‘informal workforce’, bringing them within a more productive fold. India’s biggest challenge is also its best opportunity: it has a large, young and untrained workforce that can intuitively understand applied technology, if given early exposure.

In fact, India can extract greater relative gains from the digital economy than its advanced country counterparts. Real income growth in advanced countries requires sustained and fundamental innovation whereas India can harness incremental innovation towards higher rates of growth (mostly owing to a favourable demographic).

But continued innovation support through private sector investments is not inevitable. Many policymakers mistakenly believe that India cannot be ignored as an investment destination. Nothing is inevitable.

Conversely, Make in India’s greatest threat is the ubiquitous government-run enterprise itself. And this is borne out in a number of technology-oriented industries; which is worrying as successive governments have first created favourable conditions for investments and then jeopardised them.

For instance, the telecom industry, often cited as an example of successful liberalization, finds itself at a crossroads. It is dependent on falling voice call revenues despite enough global precedent to show that data revenues are the future. The industry lacks the bandwidth to deliver affordable data.

And there is policy inertia to address this, partly due to the existence of BSNL. Policymakers have hesitated from undertaking comprehensive reforms around key challenges such as Right of Way regulations, hoping that BSNL’s networks will save the day. And BSNL has not delivered the goods: the quality of its Internet infrastructure and service ethic are reminiscent of the pre-liberalisation era.

Instead of harnessing a well-designed ‘ring network’ as was originally conceptualised in ‘BharatNet’, India has to settle for optic fibre cables thrown on electricity poles, barely resilient enough to withstand a windy day.

Another competitive technology industry, broadcasting, is another example. While most advanced countries have public broadcasters, few have created legacy issues as profound as Prasar Bharati has here.

The private broadcasting industry has been haemorrhaging money owing to high cost of ‘carriage’ and regulatory restrictions on deriving more revenues. Prasar Bharati has been on the wrong side of both these issues—not readily relinquishing spectrum to private operators which could help lower carriage costs, and forcing private operators to circumscribe their lifeline advertising revenues by applying Mandatory Sharing regulations on high value content such as sports broadcasts. Policymakers have conflated national interest with consumer choice.

The result is that broadcasting investments have been muted over the past decade despite progressive liberalization of FDI caps. The larger lesson to draw is that governments should not be both regulators and competitors. This is not the easiest pill to swallow, particularly when sentimentality accompanies the notion of government-run enterprise.

The introduction of RuPay cards by the National Payment Corporation of India, which is heavily guided by the Reserve Bank of India, indicates that the government is tempted to enter markets to disrupt perceived monopolies even in the digital economy.

Ironically, India is a party to the US-led dispute with China at the WTO on the Chinese variant of RuPay, called UnionPay. India’s approach therefore is neither consistent nor wise. It is a legacy of the past, wherein the government created markets for ‘old economy’ industries such as energy and infrastructure.

While public enterprises have succeeded, to an extent, in traditional industries, they are not optimized for the new economy which requires constant innovation and high standards of service delivery.

The government should remain a licensor, regulator and adjudicator and let consumer choice select winners in markets where neither capital nor technology are constraints.

Samir Saran is vice-president, Observer Research Foundation, New Delhi; and Vivan Sharan is founding partner at Koan Advisory Group, India.

This article has been produced in collaboration with the World Economic Forum and in line with the programme topics of the India Economic Summit on 6-7 October 2016 in New Delhi under the theme “Fostering an Inclusive India through Digital Transformation.” For more information about the meeting visit http://wef.ch/ies16.