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RE: Pak vs India - internet rates

Please help make the Manifesto better, or accept it, and propagate it!
I have a colleague in New Zealand who has to pay $500-$600
in monthly internet connection fees, because of the pricing
structure you mention. Of course his parent company in the US
has to foot the bill as this is ridiculously expensive for him
to pay on his own. So whether it's 'the right thing' or not
depends on the point of view.

Besides New Zealand with a population of less than 4 million,
does not allow the economies of scale that are possible in
U.S or India or Europe for that matter, so I think that's a rather
bad example. In India the large networks being laid out should
allow for a much more relaxed pricing structure.

In the U.S., the incremental cost of a long distance call is
very small. That is, making a 20 minute call is not 20 times
more expensive than a 1 minute call - it is just a fraction higher.
The main cost apart from connection cost is that of billing and
accounting (if people agreed to forgo getting their monthly bills,
their bill would be a lot lower). In case of internet connections,
customers don't care about getting a detailed account of internet use,
this cost is absent. These two factors (amongst many others)
make it viable to have a flat monthly fee structure. I don't see
why the situation in India is any different even at this time,
so I don't understand why internet use is metered in the first place.

The fact that internet connection fees have been subsidised makes
perfect economic sense. It is well known that the prosperity of
a society increases in direct proportion to the degree of
of its people. The record taxes reaped by the
U.S. government in the internet boom of the 90's, would have more
than paid for any subsidies that the government applied
for internet use.

The Congress of course realises this fact and has wisely stayed away
adding any impediments to the growth of the internet and it will
continue to do so.

In the Indian context these subsidies are no different than for railways
public transport - the essential goals of which are to
make it easy to connect people.

As for whether the decision is economic or political - I think
economically it is *very clear* what steps have to be taken to pave
the way for a long-term boom in India.

Yet, a bold political decision is what is needed for the very reasons
you've pointed out - to get over the argument of cost structure vs. cost

source which is extremely short-sighted IMHO and to break
the status quo, which unfortunately people get used to (i.e
unfortunately if
the status quo is bad as it is in India, but fortunately when it is good
it is in the U.S. ! :-)

As for the argument of using the taxes of people who are
not using internet for those who are -  hey, a foundation of capitalism
is that the largest resources should go to the people who can use them
the most efficiently, because they are the ones who can use these
tomove the whole society forward. This is in contrast to the socialist
principle to pull down the best of a society to shackle them down to the

level of the commonest of the common man.

Hope the last century cleared that one up !

Lastly, jeez do we really have costlier rates than Pakistan ?!
Where has our pride gone ? We can talk all we want but cost
is the bottomline, is'nt it ?

Thanks for opening up the debate. I think this is a worthwhile
topic to discuss as it has important ramifications.

- Ruchir

>From: "Banerjee, Andy" To: 'Ruchir Tewari ' , "'india-gii@cpsr.org '"
>"'debate@indiapolicy.org '" Subject: RE: Pak vs India - internet rates

>Granted unlimited local calling for Internet access (as in the U.S.)
has a
>certain superficial appeal, but it is generally not good economic
>unless one of two things is true: (1) there is unlimited bandwidth and
>switch capacity (for the portion of Internet calls that lies within the

>circuit-switched network) for handling Internet-bound calls, or (2) a
>political, not economic, decision is made to grow Internet usage faster

>than it would otherwise by subsidizing that usage at the expense of
>telephone customers who do not use the Internet.
>The problem is that it is not economically efficient to set up a rate
>structure (for cost recovery) that does not match the cost structure.
>only time a flat-rated rate structure (which would allow unlimited
>calling) is efficient is when there are no exhaustible or congestible
>facilities involved in the transport and termination of calls. Most
>switches within the circuit-swirched network (such as those of the
>whose customers make both local and Internet calls)are not configured
>the generally longer-duration Internet calls, i.e., do not have 1:1
>concentration ratios which allow transmission of Internet calls on a
>non-blocking basis. Therefore, with congestible or shared facilities,
>appropriate cost basis is incremental (variable) cost and its
>recovery is through per-minute charges. Any flat-rated service here
>cause over-consumption of the Internet, and provide a subsidy to
>users from non-users. Thus, unless there is no capacity constraint or
>subsidized growth of the Internet is desired as a matter of politics or

>policy, unlimited local calling for Internet access is generally not a
>idea. More DSL, and less dial-up connections, may take us a long way in
>direction of "good" unlimited calling plans.
>This issue is very big in the U.S. now (where you have correctly noted
>unlimited calling is often credited with signficant growth in Internet
>usage, relative to, say, Europe, where Internet access is still, by and

>large, a metered service). However, the problem in the U.S. (which need
>be at issue elsewhere) is that an archaic 16-year old FCC policy (known
>the "ESP exemption"), which was originally provided to provide "infant
>industry protection," binds the FCC's own hands in allowing recovery of

>Internet usage costs on a per-minute or metered basis. Politics again
>getting in the way of the FCC abandoning its outmoded and inefficient
>policy (and Congress will not hear of any attempt to assess per-minute
>charges on Internet usage). The problem is that everyone is so mortally

>scared about doing anything that even creates a perception of "hurting"
>Internet, that even sensible economic practices are viewed askance. Not

>metering Internet access and use is one. Not imposing sales taxes on
>transactions conducted via the Internet (rather than through
>brick-and-mortar retailing or wholesaling outfits) is another. States
>complaining loudly about the loss of tax revenue because of this giant
>loophole, but politicians do not have the guts to dare take the first
>corrective step.
>I'm personally involved in several battles, before both the FCC and
>regulators, on precisely this issue. Disturbingly, noises are emanating
>of Europe from policy-makers interested in the U.S. model of pricing
>Internet access. All they are seeing is the high growth, but seem
>blissfully aware of neither the finite capacity issue nor the subsidy
>issue. New Zealand, in my opinion, has done the right thing. On the
>principle that data and Internet calls are best carried entirely over
>packet-switched network (or as little as possible over the
>network), NZ policy-makers have started a service which would make
>Internet call bypass the network for voice calls and go directly to an
>located at a gateway to the Internet backbone. To make this happen, an
>Internet customer must dial a prefix number and subscribe separately to
>service. This is somewhat akin to "pre-subscription" in the U.S. where
>'1' that is dialed before the number for a long distance call tells the

>local carrier which long distance carrier to send the call to.

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