New model for pricing data

The National Telecom Policy (NTP) 2012 - announced in May 2012 – slipped up on two scores. First, it specifically mentioned Aakash – a brand of tablets similar to the iconic Apple iPad but with scaled down features – to be distributed to the masses for accessing content over broadband connections. While it is questionable why a national telecom policy should want to promote a specific brand of end-user devices, the fact that Aakash is nowhere near hitting the markets (the last deadline for 1 lakh tablets passed by on March 31st) is also a concern.

In the meanwhile, there are half a dozen better varieties in the market that could have served this purpose.

Focus on data usage

Second, the NTP 2012 refers to development of mobile phones based on open platform standards. This is a direct endorsement of open source technology and very avoidable. A national policy should stick to defining a vision and direction – leaving the rest to market forces.

But NTP 2012 has a redeeming feature which holds the promise to transform the entire telecom sector from a voice centric one to a data centric industry.

The game changer is the following clause in the policy: “to regulate the carriage charges, which are content neutral and based on the bandwidth utilisation”. In essence, this means that customers would now be charged only for the number and size of data packets they use over a network – irrespective of whether those packets carry voice, images, text, email or video. In the world of data all of these are just a series of packets that travel over a network. Pricing these packets rationally, efficiently and accurately would trigger the data revolution that everyone is keen to see.

It would be unlike the pricing today which is based on content – price for a voice call is significantly different from the price for data. If one were to derive the cost of a 60 second voice call travelling in data packets it would be far higher than the per minute voice call in tariff plans of today. This need not be so in the world of data where just about every application (be it a music file, a video game or a voice conversation) travels in packets.

This vision is buried in the new policy and once translated into a framework, would mean that pricing of data packets would become structured. Customers would be charged on the basis of exact size and number of packets transferred on the wireless networks (that is based on bandwidth or capacity utilised). Downloading an application, or sending an email or making a voice call would all be priced in this efficient manner.

This will be a true paradigm shift and will trigger huge benefits for all. It will be the death of content specific charging. And will drive up consumption of data by subscribers – thereby driving up data revenues for carriers. It will help streamline arrangements between network operators and content creators.

The groundwork

However, first a robust framework would have to be created. Just as (nearly ten years ago) the regulator had to define a framework for voice prices before competition drove prices to rational levels, a new regulatory framework for data is required. This will have to be evolved by the TRAI. Today is the most appropriate time to do this, as recent trends in data usage seem to indicate.

Mobile data usage has been doubling every 12-14 months over the last two years according to a study. This study is based on usage trends of both 2G and 3G subscribers captured across various networks across the country.

The study noticed that the total quantum of data grew by nearly 54 per cent between December 2011 and August 2012 – amounting to nearly 20 petabytes of data a month. One petabyte, in pure layman terms, means about 1024 terabytes or 1 million gigabytes of data which could mean about 500 billion standard A4 pages of printed text.

The study also revealed that a 3G customer consumes almost 397 MB of data per month whereas a 2G customer consumes about 95 MB of data per month today. 2G still constitutes nearly 70 per cent of the total mobile data traffic in India nevertheless an average 3G subscriber consumes nearly four times more data.

Benefits

These interesting trends indicate an increasing appetite for data. It presents a huge opportunity.

By delivering on a structured pricing framework for data, NTP 2012 would not just enable efficient pricing of data but would enable streamlining of interconnect arrangements between stakeholders. There is no reference point for data prices today and revenue share arrangements are often seen as arbitrarily in favour of network operators.

Content creators would be happy to receive the right value for their intellectual effort. Network operators too would see this as a major relief. Today, downloading of music, video and games have become hugely popular with mobile users. But this significantly chokes up capacity on mobile networks. A defined data price structure would make it easier for carriers to receive fair value for their capacity – irrespective of the content on it. This would definitely reduce potential conflicts between carriers and content providers.

There are nearly 446 million wireless subscribers capable of accessing data as of September 2012, according to TRAI. This is nearly 50 per cent of the mobile subscriber base. However, not all are active users of data. The revenue from data is still around 10 per cent of total revenues. This can change.

Setting benchmarks

There already exists a benchmark in the sector on the enormous benefits that a good policy can deliver. NTP 1999 had redefined the sector by permitting unlimited competition and migrating the telecom industry from a crippling upfront license fee regime to a benign revenue share framework. This set the trajectory for spectacular and unprecedented growth in mobile telephony in the country. From barely 1.5 million subscribers in 1999, the industry grew to 862 million in January 2013 (TRAI data).

NTP 2012 could deliver something equally spectacular. Pricing data effectively would hold the key to the new world of data even without the Aakash tablets.

(The author works for an Internet company. Views are personal)

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