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Facebook's Free Basics Initiative Draws the Ire of Net Neutrality Advocates

By Jamal Carnette, CFA - Jan 1, 2016 at 2:36PM

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For Zuckerberg, philanthropy comes with a helping of criticism.

Free Basics, formerly, is under fire from net neutrality advocates for its India operations. Source: Facebook.

There's an old, but cynical, maxim: "No good deed goes unpunished." More recently, the living embodiment of this aphorism has to be Facebook's (META 1.70%) Mark Zuckerberg. This year, two major philanthropic endeavors from Facebook's CEO have been met with antipathy.

On the personal side, Zuckerberg and his wife, Priscilla Chan, appeared to be blindsided as initial admiration for their decision to give away 99% of their Facebook shares to the Chan Zuckerberg Initiative turned to mild cynicism when it was revealed the structure that would house the assets would be an LLC, rather than an endowment, charitable trust, or a foundation. The former lacks the annual spending and/or limited-purpose requirements, leading many to jokingly label the Initiative a feel-good super-PAC rather than a bona fide attempt to improve the world.

As far as Facebook is concerned, however, a companywide philanthropic cause is coming under fire in India. The company's oft-discussed initiative, now called Free Basics, is being accused of violating the broad tenets of net neutrality.

Free, but it does have a cost
On the surface, it would seem to be antithetical to be against Facebook's Free Basics program. In a nutshell, the company aims to offer a free, limited version of the Internet for those who cannot afford to pay for access. Writing in the Times of India, Zuckerberg asks as much, writing, "Who could possibly be against this?" Zuckerberg appears to deflect any criticism and apparently wants this endeavor to be considered philanthropic. The issue, and one I feel he'd be better off taking head-on, is that his corporation and his considerable net worth will most likely be enhanced by this initiative in the long run.

By bringing free Internet to the masses, Zuckerberg should, theoretically, increase the user base for Facebook. If you haven't paid any attention, the user-base size is generally the first thing Zuckerberg reports on Facebook's quarterly conference calls. Facebook's 1.55 billion monthly active users are the reason the company is able to continue to charge advertisers for ad placement. Facebook's ability to continue to grow its user base, even at its tremendous scale, is one of the reasons the company's shares have run up 40% year to date, while smaller social-media site Twitter (TWTR 0.73%) has fallen by nearly the same amount as its user-growth figure has failed to impress Wall Street. Presumably, population is the reason Zuckerberg's initiative has focused on the second-most populated country -- the first, China, has banned the social-media site on its mainland.

Arguably the most innocuous though potentially nefarious issue, however, is that this initiative could help Facebook shape the future of India's Internet, allowing it to act as a powerful gatekeeper in terms of companies and advertisements on this "free" Internet. This is essentially the net neutrality argument: that on this Free Basics Internet, Facebook will be able to pick and choose which sites it partners with, and make the decisions on whom to partner with based on Facebook's corporate interests versus user experience and citizen enrichment.

And even if Facebook is an honest broker here -- and it very well may be, although Twitter and Google's host of services appear to not be available on Free Basics -- the Internet service provider partnering with the social-media site may not be. In an opposing piece, MediaNama's founder, Nikhil Pahwa, insinuates as much by writing, "Services which compete with telecom services will not be allowed on Free Basics."

Is something better than nothing?
This is a nuanced issue, and I assume the truth lies somewhere in between Facebook's philanthropic claims and net neutrality advocates' complaints. For example, Zuckerberg proudly proclaims that there are no ads in Facebook's Free Basics version, but stating that "this isn't about Facebook's commercial interests" is probably not totally true. If Facebook can continue to grow its user base, Wall Street will most likely continue viewing the company favorably and rewarding it with high valuation multiples. In addition, Zuckerberg and Facebook have been extremely patient with direct monetization of new initiatives, taking years to profit from Instagram and Oculus VR.

But, ultimately, even net neutrality advocates should commend Facebook for attempting to bring Internet to the masses and should understand something is better than nothing. Yes, the long-term goal is for India to have a prosperous citizenry that can purchase full-access Internet, but in the short term, Facebook's Free Basics should be a decent option. In both his business and personal life, Zuckerberg has a version of philanthropy that may be unconventional -- but that doesn't mean it can't be a force for good.

Jamal Carnette has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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