freebasics-facebook-white.jpgOne of the unintended consequences of the push towards net neutrality has been that it appears to preclude deals that allow some content to be provided freely. Such deals have been done for, say, Wikipedia but the latest issue has arisen with regard to Facebook’s

India’s Telecom Regulatory Authority has ordered Reliance Communications — Facebook’s telecoms partner in India — to stop its “free basics” program. Free basics is an easy to use set of information that people can get without paying for extra data services. It is all pretty much ‘no brainer’ stuff that we think everyone should have access to — although it also includes Facebook which makes it all a little more interesting.

There are two issues here. The first is: how could this be bad? Deals to provide things more cheaply to consumers are usually squarely in the ‘good’ basket and my econ-spidy senses suggest that is the case here too. But the second is: does this violate net neutrality both in principle and also cracking open a box to allow violations that we would worry about more?

Net neutrality has a few flavours including not charging content providers anything at all but its most basic flavour is to prevent content-based price discrimination. Usually, the worry is that an ISP will find a way of charging more for particular content to the detriment of those investing in that content. In this case, however, the ISP is being induced to favour some content and provide it more cheaply to consumers. In other words, like, for instance, T-Mobile’s plans to allow certain streaming and video services on mobile without drawing down consumer data limits, is doing the same thing here. That’s not higher prices but lower prices.

But when it comes to regulation, things aren’t as simple as looking at what goes up and what goes down. In this case, while’s favoured information has a lower price to consumers, someone is likely paying and that someone could be Facebook. That is fine so long as Reliance Communications doesn’t get it into its head to start doing similar deals with other content providers. In that situation, content-based price discrimination would come flying back through that now wide open back door. Then we could end up with a situation where many content providers in India have to pay their ISPs to access consumers without a data penalty. Moreover, to make that more palatable, it would be in the interests of those ISPs to make data penalty rates higher rather than lower.

Clearly, if the ‘solution’ here is to stop free basics or other zero-rated services, that would be a shame. There has to be a way to make these things happen so that the broader consequences do not emerge. What is certainly true is that net neutrality regulations were hardly a catch-all for these issues and I suspect we will see more of these is ISPs expose their weaknesses. Instead, adopting net neutrality is more a statement of principle. The real work in regulation has to be done. If it is to be effective, that means the prices ISPs charge cannot simply be left to their own. And you don’t have to remind me how difficult and non-obviously good that challenge is.

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