In Business Model, Internet Access, Mobile, Spectrum

All costs in the Internet value chain ultimately are paid by users, with one notable exception. App providers can use advertising revenues to create a sustainable business model, without directly charging users. The is the difference between the terms “user” and “customer.” The term “user” typically implies that some third party is defraying the cost of using a tool or service. “Customer” means a direct fee to use a tool or service is paid. 

In some cases, access or transport providers might also subsidize “access” costs.

Still, if the objective is getting all citizens and people connected to the Internet, it makes sense to reduce the prices of all other direct inputs in the value chain for which end users ultimately pay.

That rarely is a popular option, since “costs” for others in the value chain are “revenues” for each participant. Sometimes it is helpful to keep that in mind, as difficult as it might be to make the point.

To make the matter as clear as possible, the best possible outcome for users of the Internet is for spectrum costs to remain low (observers will argue about whether “free” or “low cost” is better, in terms of sustainability), infrastructure costs to remain low, taxes and fees, marketing and operating costs as efficient as possible.

The problem always is that an argument for “lower costs” across the value chain directly implies less revenue for governments, less revenue for infrastructure suppliers, ISPs and employees of most firms in most segments.

The only segments where end users do not pay is the application provider segment, where advertisers and sponsors essentially defray costs on behalf of Internet users.

In India, “total outflow to the government in the form of all fees (spectrum, license, upfront, deferred) is an astounding between 25 percent to 35 percent every year,” says Parag Kar, Qualcomm VP, government affairs, India and South Asia. “This will impact operator’s ability to invest in networks and electronics.”

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