Law and Technology

The Reliance Jio – Facebook deal – A Challenge for Net Neutrality

Dhruv Jadhav

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In 2015 Facebook had attempted to launch the Free Basics programme in India in partnership with Reliance Communications. The programme was touted to give Indians free basic connectivity to the internet. It was supposed to bring the internet to millions of Indians who did not have access to the same. However, the initiative did not take off. The altruistic programme was decried by activists and critics for violating the principles of net neutrality, by giving preferential treatment to certain websites, including Facebook. In September 2016, Reliance Jio was launched in India. Jio was truly a disruptor in the Indian telecom space and many small players were bought up by Jio or quit the industry in its wake.

The impact of Jio on data consumption and data accessibility in India was almost instantaneous. Before the launch of Jio India was placed at 155th in terms of data consumption in the world. Post Jio’s launch, India has become number 1 in terms of data consumption. Mobile data consumption in the country shot up to 370 cr Gb/month from 20 cr Gb/month. Jio managed to reduce the number of telecos in India to a paltry four vis Jio, Airtel, Vodafone and BSNL. Jio has also managed to stay profitable, while Bharti Airtel and Vodafone owe a combined Rs. 90,000 crores to the Government. Due to Jio, India became the home to the world’s second largest internet user base. In effect, Mukesh Ambani managed to bring into fruition what Mark Zuckerberg had failed to do. Mukesh Ambani truly brought the internet to India, with no strings attached. He tapped into a vast demographic which had so far been neglected by the tradition telecom operators in India due to their price schemes.

In April, 2020 Facebook bought a 9.9% stake in Reliance Jio for Rs. 43, 574 crores. This is the largest investment by a tech firm for a minority stake anywhere in the world.  This deal is also the largest FDI in the technology sector in India and has sent shockwaves across the Indian telecom and e commerce sectors. Unsurprisingly, the deal has raised concerns regarding data privacy and competition law. This deal has also raised the issue of net neutrality.

Before analysing how the Jio – Facebook deal can impact net neutrality in India, it is necessary to understand the net neutrality principles and the regulatory framework surrounding it in India. The term Net Neutrality was coined in 2003 by Columbia University law professor Tim Wu, in a paper regarding online discrimination. Net Neutrality is the principle that internet service providers (‘ISPs’) should treat all internet content equally and should not implement discriminatory practises to hinder or quicken access to certain services or content. The reasoning behind this principle is that the internet should be an equal opportunity, equal playing ground for all the players. The primary argument for net neutrality is that if the ISPs give preferential treatment to certain content, then newer players in the online market will have a much more difficult time competing for customers and this is in turn will stifle innovation. A civil liberty concern for protecting net neutrality is that if the access to the internet is dominated by a few private companies, then these companies will have enormous power in terms of the content and speech which can be accessed by the public. This can be used to suppress or encourage certain ideologies or views.  To entrench the market innovation argument in a real life example, in 2014 Airtel wanted to charge its customers over and above its data packs for Voice Over Internet Protocol (‘VoIP’) calls. Consequently, Airtel customers would have to pay more as data charges to Airtel for making calls over services such as Skype calls.  Given that the Indian consumer is extremely price sensitive,[1] such a move from Airtel could have easily stifled the introduction of services such as Whatsapp calls in India. Airtel never ended up implementing their discriminatory pricing for VoIP calls, partly due to social media backlash and partly because they were waiting for TRAI to clarify its stance on net neutrality.  This is one among many examples of how an ISP can manipulate how its consumers’ internet viewing experience. Take a less insidious example, where the ISP slightly reduces the connectivity to an online payment platform such as Google Pay and maintains its connectivity to a rival such as Paytm. After a few failed transactions on the former, customers will invariably shift to the latter.

In the wake of the Free Basics debacle India became one of the few countries to take a proactive stance on the issue of net neutrality in the world. Net Neutrality is implemented in India through the licence agreements which are executed between the Department of Telecom (‘DoT’) and the ISPs. This means that there is no overarching statute which protects net neutrality. Rather, preserving net neutrality is an obligation borne on the ISP to provide services in India. An advantage of having net neutrality embedded in the licence agreements over having a net neutrality law is that the debate surrounding net neutrality is dynamic in nature. As such, quick changes may not be possible in the law, but they can be done through the license agreements. The DoT is responsible for the monitoring and the enforcement of the net neutrality principles embedded in the license agreements.

In 2016, the Telecom Regulatory Authority of India (‘TRAI’) published the Prohibition of Discriminatory Tariffs for Data Services Regulations, 2016 (‘Regulations’). According to Sec. 2 (l) of the Regulations a service provider means the Government and includes a licensee. The Regulations have explicitly forbidden discriminatory tariffs on basis of content with the exception of reduction of tariff rates for accessing or providing emergency services, in times of grave public emergency.[2] Sec. 5 deals with the consequences of contravention of the Regulations. A service provider can be asked to withdraw a discriminatory tariff and pay a financial disincentive of an amount of Rs. 50,000 per day of contravention subject to a maximum of Rs. 50, 00,000. TRAI is responsible for the enforcement of these Regulations. This means that after a period of 100 days there will be no addition to the quantum of the financial disincentive. Rs. 50,00,000 is a drop in the ocean not just for Jio, but for any of the telecom operators.[3] Practically the fine is not an enough deterrent for ISPs to not violate the principles of net neutrality. However, separately, the DoT can look at the ISP by the virtue of the licensing agreement. So far, however, there is no precedent as to what DoT would do if an ISP is found in violation of the licensing agreement.

In terms of violations itself, the Internet Freedom Foundation has recorded a total of 134 instances over a period of two weeks. Almost all of these instances relate to the blocking of various sites from ISP and not of data throttling.  TRAI or the DoT has not reported any violations of the net neutrality principles. Critically, there are also no public report on initiatives taken by the two agencies on the monitoring and enforcement of net neutrality.

In this backdrop, Facebook has announced the launch of two services which can have potential net neutrality issues. The first is the launch of its short format video sharing app ‘Lasso’ which is supposed to compete with TikTok. India has about 120 million users on TikTok, which is the highest that the app has outside of China.  The maximum user growth rate of TikTok came from India in Q1 of 2019. Facebook has also stated that the Indian market will be a key demographic for Lasso’s growth. According to some analysts as soon as Facebook launches Lasso on Jio’s platform it will instantly become bigger than TikTok.[4] The second initiative of Facebook which has already attracted some controversy is the WhatsApp Pay initiative. The service had faced obstacles due to data localization requirements, but since then has gained permission from National Payments Corporation of India (‘NPCI’) to roll out its service in a phased manner. This will put WhatsApp Pay in direct competition with Google, Amazon and PayTm, amongst others. Any kind of preferential treatment that Jio may potentially give to Facebook can have a colossal impact on both these sectors. A faster loading Lasso or better connectivity WhatsApp Pay to Jio users can result in a change of brand loyalty. Jio though has rubbished this possibility and has stated that Net Neutrality principles will be respected.

It should be easy to give Jio the benefit of doubt in such a situation. After all, net neutrality principles are embedded in the licencing agreement. TRAI too has not detected any net neutrality violations in the Indian space. Furthermore, TRAI has a great record when it comes to shutting down enterprises which may threaten net neutrality. However, historically it has been difficult for regulators to detect net neutrality violations. The economic advantage which can come from giving preferential treatment to Facebook or its apps may far out weight any financial disincentive. The larger question is – if there is violation of the net neutrality principles embedded in the licensing agreement, what action will the DoT take against the largest data provider in the country? Jio is truly too big to be shut down and too important in the scheme of digital India to be reined in.  Lastly, TRAI had released a new consultation paper on issues relating to traffic management practises (‘TMP’) and on the possibility of setting up a multi-stakeholder body (‘MSB’) on net neutrality. While, technology firms and content platforms have supported the idea of an MSB to regulate the contours of TMP, both Bharti Airtel and Jio believed that given the inclusion of net neutrality principles in the licencing agreement, there was no need for such a body. Regardless of whether an MSB is created, the Jio – Facebook deal is going to keep TRAI on its toes. Reliance Jio has undoubtedly given India access to data; it is up to the regulator to ensure that the company does not become too big to fail.

[1] Jasrotia, Sharma and Misra, Disruptions in Indian Telecom Sector: A Qualitative Study on Reliance Jio, Vol. 11 (1), 41, Indore Management Journal.

[2] Sec. 4, Prohibition of Discriminatory Tariffs for Data Services Regulations, 2016

[3] Antitrust enthusiasts will recall the EC’s 2017 fine on Google for violating its antitrust regulations. Google was fined Euro 2.4 billion the largest anti-trust fine issued by the EC. The fine represented just over 2.5% of Google’s 2016 revenue.

[4] This analysis comes from Money Control which is owed by RIL. The reasoning for this assertion seems to be that the 400 million users of Jio will download and use Lasso. This reasoning is faulty since Lasso’s targeted demographic is teenagers and Jio’s userbase comprises of older people as well, who will mostly not download the app.

The Author is an NLSIU Alumnus (Batch of 2019)

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Categories: Law and Technology

6 replies »

  1. Excellent write up suggesting consequences on neutrality on Facebook buying up stakes in ISP Jio, any conflict of interest or regulatory separation required for such ventures!


  2. Very good analysis. One has to rethink the entire idea of net-nutrality and how the possibilities of collaboration between the service provider and a platform provider is a challenge to legal and moral in the bussiness world of server and consumer.
    Congratulations Dhruv.

    Liked by 1 person

    • Thank you for your kind words of encouragement, Professor. I agree with you that the contours of net neutrality will be a challenge for the business world.

      Like you stated there is a need to rethink net neutrality. While researching for this article, I felt that even OTTs such as Netflix do not adhere to the philosophical foundations of net neutrality. By pushing and consequently suppressing certain content by the virtue of their algorithm, they are not strictly adhering to the concept of equal access to all content.


  3. I was fearing that the article would be chock-full of legal jargon, but it has managed to drive home key points and has provided a lot of food for thought and contemplation without being a particularly tough read for people without a legal background like me.

    Great work, Dhruv!

    Liked by 1 person

  4. Very well researched written
    article covering the basis of internet nutrality, and taking through the pros and cons of it, bringing out the financial impact of it. Also analysing the future trend and forecasting the scenario. All this done without using much technical jargon and it keeps you interested in the subject. Congratulations. Write more such articles.

    Liked by 1 person