Bogus outrage

Attempts to create a level playing field can have limited success going by the experience in the stock market

By Mohan Sule
The trigger for the outrage was innocuous. An Internet service provider offered zero rates to users clicking on the app of an e-tailer. Instead, the merchant paid the ISP for not counting the usage of data by the visitors. Competitors contended the agreement gave an unfair advantage to the trader. A grim scenario was painted of ISPs blocking sites on behalf of government or slowing access to those of smaller players who are unable to afford this extra cost. The argument is that as gatekeepers to the Internet, ISPs have to be neutral in providing access to the net and not help divert traffic to certain sites by providing exclusive lanes to speed up download. The proposition is compelling. Imagine, for instance, a hospital charging differential rates for the same treatment, depending on the economic status of the patients. Civic services like supply of water are billed as per usage and not the purchasing power of the user. Power bills and telecom tariffs are generated as per consumption. Yet, leveling the field is easier said than done. Applicants to private educational institutions can jump the queue by paying donations, disregarding scholastic achievements. Corporate hospitals hike fees to ensure that their resources are not comprised by heavy demand or to enlist specialists. Multiplexes price tickets depending on the popularity of films and screening slots. Credit card issuers routinely offer discounts for visiting certain retail outlets or fine dining restaurants. Brands woo super markets and even mom-and-pop outlets with higher margins for better display and push. This means unless some sort of discrimination is practiced, it will be impossible for many organizations set up to make profit to justify their existence.

The Securities and Exchange Board of India’s experiments to flatten the playing ground for issuers and subscribers have produced more misses than hits. The stock market regulator has strengthened norms against insider trading by enlarging the definition of who fits the bill. Deliberations of board meeting have to be conveyed to stock exchanges within minutes. Transcripts of analysts’ meets have to be posted on the company’s web site for symmetrical dissemination of information. The efforts to protect minority shareholders have been matched by easing of resource-raising. As long as they make full disclosures, companies do not need permission of any authority to list on stock exchanges. This has opened the floodgates for even dubious promoters, many of whom have subsequently vanished from the scene. On complaints about the cost of floating shares to the public and for staying listed, Sebi carved out quotas for institutional investors, throwing in a carrot of retail discount. Shares can be placed with qualified institutional investors, bypassing the small investors. Book building gives big-ticket investors influence to determine pricing as they are informally polled to find the appetite for the offer. Grading of public issues indirectly helped established companies and so will the move to cap the commission of mutual fund distributors, an avenue for small players to gain visibility.

In the debate on net neutrality, a crucial issue has been lost sight of: except for sites put up by governments and multilateral institutions, everyone is out to make money or peddle influence. B2B presence is to gain access to a wider market and B2C properties eliminate the cost of building a brick-and-mortar set-up. Blogs eventually hope to self-sustain through ads. Free content is giving way to paid subscription to meet costs if not to etch out a profit. If there is still an echo of the disastrous eyeball parameter to assign valuations to dot-coms without any cash flows reverberating across the net, it is due to startups, many put up by con artistes out to snag venture capital or private equity. The shrill follow-the-herd cries for net neutrality should recognize that telecom companies have to pay for spectrum. They are answerable to their shareholders. The choice for them is between increasing voice and data tariffs and exploring other options to lighten the pricing burden to stay competitive. Internet retailers, on the other hand, are hobbled by server breakdowns in their quest to expand market share. The result is an arrangement beneficial to all the stakeholders. It is a pity that Flipkart buckled under pressure and backed out of the zero rate plan of Bharti Airtel, which though has stayed firm in going ahead with the program. No doubt, a company has to operate in an ethical environment. But surrendering to populism at the cost of the bottom line reveals to the shareholders where its priorities are. Hopefully, investors will not forget this when the e-commerce pioneer in India comes out with an IPO.