Impact of Differential Pricing On Usage of Internet Services



Internet Services in India were launched on 15th August 1995 by Videsh Sanchar Nigam Limited (VSNL). During the first three years of VSNL operation, the Internet subscriber base grew slowly. By the end of March 1998, it had barely reached 140,000 subscribers. In November 1998, the Government recognized need for encouraging spread of Internet in the country and opened the sector for provisioning of Internet Services by Private Operators. Then the License conditions for providing Internet services were liberal with no entry and License fee and allowed unlimited number of players.  With growth and development of the sector regulations were reformed.

Presently internet is priced on the usage in terms of amount of usage rather than the nature of usage. For example, an internet plan of 1Rupee/megabyte will take into account the number of megabytes used for billing purposes, irrespective of the nature of internet services used.

Current guidelines by Telecommunications Regulatory Authority of India (TRAI) regarding Internet Service Providers:

No service provider can offer or charge discriminatory tariffs for data services on the basis of content.
No service provider shall enter into any arrangement, agreement or contract, by whatever name called, with any person, natural or legal, that the effect of discriminatory tariffs for data services being offered or charged by the service provider for the purpose of evading the prohibition in this regulation.
Reduced tariff for accessing or providing emergency services, or at times of public emergency has been permitted.
TRAI may review these regulations after a period of two years.

This research focuses upon internet services only and excludes differential pricing of other content category like websites, applications, etc.

What are Internet Services? (REF)
Internet services provided by Telecom Operators include:
ü Internet Browsing,
ü Downloading,
ü VoIP,
ü Applications,
ü Cloud Services,
ü Internet Television,
ü and Social Networking, etc
What is Differential pricing?

Differential pricing of internet services involves charging consumers based on the nature of usage i.e. charging individual internet services differently.
FOR EG: All Internet/data packs or plans (through which customer can avail discounted rate) shall only be valid for internet browsing and will exclude Voice over Internet Protocol, Instant Messaging Apps, Download, etc.
RELATED CONCEPTS
Zero Rating
On the lines of differential pricing is the concept of zero-rating popular content. This would include having a specific set of plans which offers a feature rather than just giving it all subscribers .The two major zero rating services are Airtel Zero and Free Basics.
Airtel Zero is a platform through which Airtel will offer users free access to certainmobile applications and services from companies who have signed up with Airtel. This is a practice where internet service providers (ISPs) do not charge customers on data for select applications that they use. Following a public outcry from those who want a free and equal internet, a number of firms, including Flipkart, pulled out of Airtel Zero.
Free Basics by Facebook According to Facebook, it is an open platform that gives Indian developers the opportunity to make their services and websites available free of cost to those who cannot afford internet access. However, this free access is limited to partner websites and applications. It was launched globally in partnership with Samsung, Ericsson, MediaTek, Opera Software, Nokia and Qualcomm.
Net Neutrality

Net Neutrality means that all data on the internet should be treated equally by corporations, such as internet service providers, and governments, regardless of content, user, platform, application or device.

Network neutrality requires all Internet service providers (ISPs) to provide the same level of data access and speed to all traffic, and that traffic to one service or website cannot be blocked or degraded.

Net Neutrality Advocates for network neutrality suggest that by not allowing ISPs to determine the speed at which consumers can access specific websites or services, smaller companies will be more likely to enter the market and create new services.

Critics of network neutrality suggest that by forcing ISPs to treat all traffic equally the government will ultimately discourage the investment in new infrastructure, and will also create a disincentive for ISPs to innovate.

Discussion over Net Neutrality has garnered immense attention especially after much advocacy by people like Law Professor Susan Crawford, Filmmaker Laura Poitras, American computer professionalEdward Joseph Snowden, American Comic John Oliver, and Indian Comedy group AIB.

2. OBJECTIVE

A study on differential pricing of internet services can achieve following objectives:
To understand whether differential pricing affect the consumer preference for using different services over the interne.
To know whether users are willing to pay differently for different services.
To know the most frequently used internet services.

3. NEED FOR STUDY

A study on pricing and usage of internet can help find solution to provide affordable access to internet.

Impact of differential pricing on mobile internet usage can determine the feasibility of implementing differential pricing.

We can chart out the scope of differential pricing of internet services in terms of pricing services.

The nature of usage of internet services can guide the allocation of bandwidth (data transmission rate) in providing different services.

4. RESEARCH METHODOLGY

Research methodology states what steps were employed to carry out the research study.
Primary data for the research includes a survey conducted of mobile internet users.
Collection of original primary was undertaken after reviewing Consultation Paper on “Review of Internet Services” from Telecom Regulatory Authority of India.

Sampling Technique

The population subject to this research is mobile internet users. In order to collect a sample data, a questionnaire was circulated amongst mobile internet users through “WhatsappMessanger Application”

The sample include circle of friends of students of St Francis Institute of Management and Research (SFIMAR), Mumbai.

Sample Characteristics

In case of sample size we have taken 62 respondents through Google Forms.


AGE GROUP
RESPONDENTS
18 to 25
53
25 to 35
5
Below 18
2
Above 35
2


According to Internet and Mobile Association of India (IAMAI) and IMRB International,75% of the internet users belong to the age group of 18-30 years. Another 11% are in the age group of 18 years, while 8% belong to 31-45 years age group.


GENDER
RESPONDENTS
MALE
34
FEMALE
28

According to Internet and Mobile Association of India (IAMAI) and IMRB International,71% male and 29% female are Internet users in India.The Internet users among females are growing at 61% and 79% among males. 

According to Internet and Mobile Association of India (IAMAI) and IMRB International,32% of the users are College Going Students followed by 26% Young Professionals.

Research Instrument

Following questionnaire was used to collect the primary data for the research.

“IMPACT OF DIFFERENTIAL PRCING OF INTERNET
SERVICES ON MOBILE INTERNET USAGE”

*Required

1. AGE? *
MARK ONLY ONE.
§  Below 18 Years
§  18 to 25
§  25 to 35
§  Above 35 years

2. WHICH OF THE FOLLOWING BEST DESCRIBES YOUR CURRENT OCCUPATION? *
§  Student
§  Entrepreneur
§  Home-Maker
§  Working Professional

3. GENDER? *
MARK ONLY ONE.
§  MALE
§  FEMALE

3. ARE YOU A PREPAID OR POSTPAIDMOBILE SUBSCRIBER? *
MARK ONLY ONE.
§  PREPAID
§  POSTPAID

4. 2G/3G/4G? *
MARK ONLY ONE.
§  2G
§  3G
§  4G

5. HOW MUCH DO YOU SPEND ON MOBILE INTERNET USAGE MONTHLY? *
MARK ONLY ONE.
§  Below Rs 100
§  Rs 100 to 200
§  Rs. 200 to 300
§  Rs. 300 to 400
§  Rs. 400 to 500
§  Above Rs. 500

6. WHAT DO YOU USE MOBILE INTERNET FOR? *
TICK ALL THAT APPLY.
§  Social Networking Apps
§  Mobile Apps Requiring Internet (Shopping, Gaming, News and Updates, etc)
§  Downloading
§  Voice over Internet Protocol (Internet Calling)
§  Cloud Services
§  Internet Television
§  Internet Browsing

7. WOULD YOU PREFER TO PAY FOR ONLY THE SERVICES OF YOUR CHOICE INSTEADOF ALL OFTHE ABOVE INTERNET SERVICES? *
MARK ONLY ONE.
§  YES
§  NO

9. IF YES, WHICH ARE THE ONES YOU WOULD SELECT? *
TICK ALL THAT APPLY.
§  Social Networking Apps
§  Mobile Apps Requiring Internet (Shopping, Gaming, News and Updates, etc)
§  Downloading
§  Voice over Internet Protocol (Internet Calling)
§  Cloud Services
§  Internet Television
§  Internet Browsing

10. ON A SCALE OF 1 to 5, HOW WOULD YOU RATE THE IDEA OF PAYING DIFFERENTLY FORDIFFERENT INTERNET SERVICES? *
§  1 Being Worst and 5 Being Excellent

11. WHAT DO YOU THINK WILL HAPPEN, IF TELECOM COMPANIES START CHARGING DIFFERENTLY FOR DIFFERENT SERVICES? *
§  IT WOULD HELP SAVE MONEY BY USING LIMITED SERVICES
§  INTERNET WILL BECOME COSTLIER
§  THERE WONT BE ANY CHANGE

 5. DATA ANALYSIS

Hypothesis
H0–Differential pricing of internet has no impact on the usage of internet services.
H1– Differential pricing of internet has impact on the usage of internet services.


TABLE1. OBSERVED VALUES FOR CURRENT PREFERENCES FOR INTERNET SERVICES AND PREFERECNCES UNDER DIFFERENTIAL PRICING
ACCEPTANCE OF DIFFERENTIAL PRICING
PREFERENCES FOR INTERNET SERVICES
TOTAL
NO CHANGE IN PREFERNCES
CHANGE IN PREFERENCES

YES
24
20
44
NO
8
10
18
TOTAL
32
30
62

TABLE2. EXPECTED VALUES FOR CURRENT PREFERENCES FOR INTERNET SERVICES AND PREFERECNCES UNDER DIFFERENTIAL PRICING

ACCEPTANCE OF DIFFERENTIAL PRICING
PREFERENCES FOR INTERNET SERVICES
NO CHANGE IN PREFERNCES
CHANGE IN PREFERENCES
YES
21.29
22.71
NO
8.71
9.29

TABLE3. CALCULATION OF CHI SQUARE VALUE

OBSERVED VALUE (O)
EXPECTED VALUE (E)
(O-E^2)/E
20
21.29
0.08
24
22.71
0.07
10
8.71
0.19
8
9.29
0.18

∑ (O-E^2)/E = 0.52

CALCULATED VALUE
DEGREE OF FREEDOM
SIGNIFICANCE LEVEL
CHI-SQUARE TABLE VALUE
0.52
1
95%
3.841



CHI-SQUARE GRAPH




The test statistic, with 1 degree of freedom and 95 % significance level, is 3.841.
As calculated value of Chi-Square 0.52 is less than criteria 3.841, we accept H0.

H0 – Differential pricing of internet has no impact on the usage of internet services.

Thus there is no significant evidence that differential pricing has an impact on the use of internet services among mobile internet users.
  
6. FINDINGS

88% of the sample surveyed uses prepaid mobile subscription which means that majority of mobile users prefers to pay for limited usage of telephone services rather than use as much as required.

As per The Indian Telecom Services Performance Indicators January - March, 2015 share of prepaid mobile subscription was 95.64 %
  

We can see from above diagram that 58 % of users spend below Rs 200 on monthly internet usage.

According to a report by the Internet & Mobile Association of India (IAMAI), and IMRB International:
More than half of the Mobile Internet users spend more than Rs 100 but less than or equal to Rs 500 in availing the mobile Internet services and nearly 30 per cent spend more than Rs 500 on the mobile Internet connection, it said, adding while 33 per cent of the mobile Internet users avail rental plans with limited downloads, 21 per cent subscribe to unlimited rental plans.


Above graph explains the most preferred internet service under single pricing. Due to growing trend of websites like Facebook, Twitter, Instagrametc and availability of such social networking platforms through mobile applications majority people are using internet for social internet applications.
The above graph shows the acceptance level of differential pricing of internet services amongst mobile internet users. Though majority of users prefer differential pricing they may or may not behave differently if differential pricing is implemented.

Above graph gives preferred services under differential pricing of internet services. The graph when compared to existing usage patterns can tell which services people are ready to sacrifice.

We can see that percentage of services such as Social Networking, Mobile Applications and Cloud Services have gone down while that of Downloading, VoIP have gone up.

As differential pricing of internet is new to most internet users majority have chosen middle value when rating the concept of differential pricing of internet services.
Majority of users feel that they would be able to save money by paying for individual services. This graph also reflects on the consumers’ willingness to use internet cost effectively.

6. RECOMMENDATIONS

We suggest charging for internet irrespective of nature of usage. Charging discriminatory tariffs for data services on the basis of content would have little significance for users.

To make internet more affordable the sum of prices of individual services must be less than the existing single pricing of internet.

Also telecom companies can create closed networks like intranet in order to provide similar services at differential prices.

 8. SCOPE

The fast technological developments are changing the telecom scenario.

The increasing availability of optical fiber, reduced latency in IP networks, better speech quality of Internet over Internet clouds and improved quality of service is encouraging launch of new applications and services.

The next generation networks (NGN) is another topic of discussion. The possibility of separation of network layer from service and application layer has facilitated launch of new services and contents with great ease.

Internet service providers will compete not only on quality or price of the services but also on the variety of services suitable to subscribers.

The Internet has operated according to this neutrality principle since its inception. Indeed, it is this neutrality that has allowed many companies (application service providers, content providers etc.) to launch, grow, and innovate.

In US, Network operators want to charge Internet content providers for enhanced IP services, while Net neutrality proponents say regulations are needed to prevent abuse by the Net's gatekeepers. There have already been instances of Internet providers blocking access to Internet applications that allow you to access your company's network, share files with peers - even send large attachments (like digital photos) in your email. Internet providers are not prohibited from discriminating against the content available using their services; therefore they could legally restrict access to any website or Internet application they choose whenever it suits their bottom-line economic. The broadband carriers want US Congress's permission to determine what content gets to you first and fastest.

The situation may also rise in India as Internet access providers may use their market power to discriminate against competing applications and/or contents.

 9. LIMITATIONS

The research conducted involved small sample size which was geographically concentrated and was comprised mostly of students.

There is lack of research material on the topic and hence not much secondary data is available.

The research paper gives only consumer point of view and does not take into consideration perspective of Internet Service Providers, due to which pricing decisions are not evaluated.

10. CONCLUSION

With rapidly changing environment in telecom industry, introduction of differential pricing of internet will play less important role in the growth of the industry. There is little or no evidence that shows that differential pricing impacts consumer behavior regarding usage of internet services.

Internet in its current form must be maintained uniformly accessible. There is limited scope for Internet Service Providers to maximize revenue through differential pricing.

An occupationally diverse and geographically spread sample could give additional insights regarding preferences for internet services

Alternate models like closed networks can provide a platform to supply similar services at differential tariffs.

REFERENCES

TRAI

ConsultationPaper

The Indian Telecom Services Performance Indicators January - March, 2015
http://www.trai.gov.in/WriteReadData/PIRReport/Documents/Indicator-Reports-Mar12082015.pdf

Internet & Mobile Association of India (IAMAI)



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