Net Neutrality - regulatory confusion leading to faux debate?

"Net neutrality" has been trending in the social media for quite some time. Thanks to Facebook's aggressive courting of even the main stream media in the last few weeks (with full page ads, Op-eds by Mark Zuckerberg himself et al), the matter has suddenly acquired an even higher profile. As is usually the case with anything digital, acronyms and jargons have taken over the discourse - data discrimination, Freebasic.

It would be useful to look at what the issue really is, and which side of the divide makes more sense.

As of today, access to internet requires subscription to a data plan from a telecom company (telco). Data plans typically are more expensive than vanilla voice plans, though the pricing has been coming off steadily.What Facebook is proposing in partnership with Reliance Communication (RCom) is a "limited access" concept. In this, accessing FB will be free, ie, a subscriber without a data plan would be able to access FB. According to FB (and others on its side of the debate) argue is that this would enhance internet access to people who cannot afford expensive data plans. FB claims that this would increase the pace of internet penetration in India by 50%.

Naysayers on the other hand have two basic objections. One, it violates the concept of "net neutrality", ie, all internet sites should be equally accessible. And two, free FB messenger (say) through RCom will restrict growth of newer, disruptive messenger apps as both FB and RCom would/could act as gatekeepers preventing access to the latter through expensive data. Andy Mukherjee, the Bloomberg columnist has weighed in with the objections quite well in a Livemint article today.

http://www.livemint.com/Opinion/elkKQzTLVAru6wKc44OUMN/Mark-Zuckerbergs-Internet-gift-to-India-looks-like-a-trap.html

I think the issues are twofold.

The first is a philosophical question. And that is simply whether data (internet) is a free commons (like air, sunlight) or a scarce natural resource (like coal, oil). The fact is that the decision on this question has already been taken. Bandwidth has been defined as a natural resource and the government auctions the same for a lot of money. Given the general acceptance of this approach, the society wants to treat internet as commercial consumer service.

The second question therefore is, what should be the regulatory approach towards this service? Coverage, or neutrality? to me its a faux divide.Taking instance from other utility and consumer services, the evidence is actually very strong in favour of differential pricing strategies (of the type advocated by FB) leading to enhanced coverage. Even utilities that are natural monopolies like power distribution, have expanded coverage through differential tariffs. On the other hand, utilities subject to intense competition have shown even better results. None better than telcos on voice telephony, where differential tariffs based on user groups, specific services (like toll free), usage duration and a lot more have made telephony cheaper and enormously helped coverage.

The scenario today is the following - when I surf www, whether I log on to FB or Google or MSN, I pay as per my data plan. A chap who cant afford the data plan is not on www today. Tomorrow, my telco would offer a plan that would make accessing FB free. Will that increase my time on FB? Very unlikely. But that certainly would pull the other chap into www, even if only for FB (and such other "sponsored" sites). Will that increase data tariffs on X-subsidisation? Given the intense competition in the space, virtually unlikely.

Which brings us to the question of neutrality, or access. That is NOT a commercial question, left to RCom or FB. That is a regulatory responsibility. As long as the regulator ensures that RCom is obliged to provide me as speedy an access to MSN messenger as it does to FB messenger, even if it is for a price, anything else doesnt matter. New apps will have the same opportunity to disrupt FB from the "paying customer" population that they have today. Technically, the free internet users accessing FB arent even a customer base for anyone today, hence net net (as they say in banking), it doesnt matter.

This leaves a last, somewhat disturbing point to address. And that is a fear that somehow free access to some sites/apps will "hook" the poor to the internet, and they will start spending money on other, "non-free" sites/apps to their own detriment. This betrays a liberal condescension for the ability of poor to make rational judgements. Not very different from saying that if you give the poor money (instead of subsidy) they will blow it up on alcohol and marriages. As an axiom, this has been debunked time and again (Esther Duflo/Abhijit Banerjee's Poor Economics is a good source of the data).

We should not let class divides come in the way of digital inclusion and exacerbate the digital divide.

Make in India in defence - Very old wine in old bottle?

One of the signature initiatives of the Narendra Modi government has been the "Make in India" campaign. While the broad thrust of the campaign, which is to boost share of domestic manufacturing in GDP, is unexceptionable, the relevance of the same at a brass-tacks level merits close scrutiny. Especially true in the area of defence, where a host industrial houses - Reliance, M&M, Adani, Tata - have been setting up JVs and acquiring companies (eg, Reliance acquisition of Pipavav Port) with foreign OEMs in anticipation of large "Make in India" orders. 

The big question though is, what exactly is "Make in India" as far as defence manufacturing is concerned?

These are early days yet, but the recently concluded deal with Russia to manufacture Kamov Ka226 Utility Helicopters (UH) provides some indications. From press reports following the PM's recent visit to Russia, 200 of these choppers will be manufactured in India. The spokesman of the External Affairs Ministry described this as the "first project for a major defence platform under the Make In India mission". Interestingly, the lead Indian "partner" for this estimated USD 1 billion contract is reported to be Hindustan Aeronautics Limited (HAL), and not Reliance Defence, which was widely tipped to bag the contract earlier.

While details are sketchy yet, the template is intriguing. The Ka226 platform is slated to replace the legacy Chetak/Cheetah platforms operated by both Indian Army and Indian Air Force. Chetak and Cheetah are Indian versions of the Aerospatiale Alouette III and SA315B Lama respectively. They have been manufactured under license by HAL in India since the early '70s, with more than 600 choppers having been manufactured till date. Over the last four decades, while some modifications have been attempted (most ambitious of which was the Cheetal - a re-engined Chetak fitted with a new engine), the basic aircraft has remained the same. HAL hasnt carried out any major upgrades of the airframes. Worryingly, four decades of what has essentially been "Make in India" hasnt enabled HAL to develop a successor airframe. 

LUH - the (yet another) successor that wasnt?
The Light Utility Helicopter (LUH) programme, which was slated to replace the Chetak/Cheetah has been in development for a decade. The first test flight of LUH has seen multiple postponements, with the last reported date (Dec 2015) being the latest in a string of missed deadlines.

Moving away from the UH programme, the storyline is actually one of deja vu. HAL has been manufacturing fighter aircraft (Gnat/Ajeet, Mig21/27, Jaguar, Su30), utility aircraft (Do228). 

License Manufacturing - the pig's lip
In other words, for large defence platform and sub-system acquisitions, both aeronautical and land systems (T72 tanks for example), "Make in India" has been in place for a very long time. Traditionally it has been known by a sexed down axiom,ie, license manufacturing. The signature feature of license manufacturing of course was the monopoly of the public sector as the main assembly line integrator of the platforms. It would either be a DPSU (like HAL) or the Ordnance Factory Board (OFB).

In none of the programmes though have the assembly line experience enabled HAL develop, test and deploy the next generation of the aircraft/aero-engine. Each platform has been and is being replaced by fresh imports. Even platform upgrades, eg, the Bison upgrade for Mig21, required foreign OEM support.

Nor has license manufacturing enabled India to be self sufficient in key sub-systems like aero-engines. HAL has been manufacturing the Al31 engines (used in Su30) for nearly a decade. This license manufacturing experience has been of little relevance in enabling India develop its own series of aero engines.

In short, license manufacturing hasnt provided the gateway to the future.

National programmes like the Light Combat Aircraft (LCA) have been executed in design/R&D mode outside of HAL.

Make in India - lipstick on the pig's lip
The sequence of events begs the basic question - what are the objectives of "Make in India" in defence? How is it different from the erstwhile license manufacturing regime?
1. Ensure continued maintenance of the aircraft over its lifetime in India?
2. To build assembly line manufacturing experience?
3. Ensure deployment of part of the expenditure back into the domestic economy as investment?
4. Create a private sector ecosystem of major integrator?

The general experience on maintenance of platforms is that a well funded logistics chain is a lot more important than assembly line manufacturing base. IAF has superb uptime with the Mirage 2000 (which wasnt assembled in India), but is part of a first class French logistics footprint. On the other hand, Su30, 220 of which will be eventually assembled in India, has a terrible uptime record (as successive CAG reports).

Experience over the years also shows that skillsets built in "screw driver" manufacturing imparts no sustainable transferable skillsets that can be transferred to the next generation of major platforms. Major technology transfers are only in name, and critical technologies are almost never truly transferred.The general sense also is that such creation of new assembly lines in India inflates the final cost of the platform (we have seen that in Su30, and also during the recent Rafale MMRCA negotations).

Is the basic intent therefore to create a private sector ecosystem? One that will be more efficient in retaining and transferring skillsets to other programmes? That could be a worthy endeavour, one that will play out in the long run. However, if that indeed is the objective, giving the Ka226 contract to HAL militates against the same.

Unless Make in India is to be a shiny lipstick on the pig's lip, the government needs to be clear on what it means for a domestic Military Industrial Complex.