Subject: [gaia] Economics of zero rating?

From: Aaditeshwar Seth <[email-masked]>
Date: Sat, 9 May 2015 00:33:01 +0530

Hi all,

With all the buzz in India lately about net neutrality and zero rating, I
am curious to understand what are the actual economics behind this game.
Tried doing some rough calculations.

Some numbers I heard through friends in the industry was that Flipkart, an
online retailer like Amazon, was paying the cellular provider Airtel a flat
rate of INR 88,000,000 per month to zero rate access to Flipkart.

And Flipkart published a separate statistic some time back that it was
doing 5M deliveries a month, and that 20% of its orders were from mobile
phones. Doing a very crude approximation assuming that each delivery was
via a new transaction, this implies some 1M transactions per month on
mobile.

An INR 88M zero rating fees for 1M successful transactions is INR 88 per
transaction or roughly $1.5. From Flipkart's perspective, this might be a
bit aggressive, it will eat into their margins and assuming an average
transaction value of $15 or so, it may pinch. Flipkart btw does free
delivery for transactions over INR 500 or $8.

>From Airtel's perspective, this revenue is required to subsidize the mobile
app access cost of this user. Assuming say 5MB data per user session and
that a purchase might be made in only one out of 10 sessions, this means
for 50MB of data for each purchase Flipkart is paying $1.5. This seems very
high given that in India a 1GB 3G data plan comes for INR 250 for a month,
or $4 approx. So 50MB of access only costs the telco ~ 20c or so, but for
which they are charging $1.5 from Flipkart. It's quite a steal for the
telcos it seems!

These numbers however are mostly unofficial and there are some big
assumptions as well, so I don't know how valid the calculation really is.
Any insights that others have in the matter?

I also wonder what the Internet.org economics might be like?

Aadi