Independent regulation is still a challenge

Independent regulation is still a challenge
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First Published: Thu, May 21 2009. 12 50 AM IST

Updated: Thu, May 21 2009. 12 50 AM IST
India’s performance in two related markets, namely mobile telephony and broadband Internet services, is a study in contrast. The selection of the new chairperson of the country’s telecom regulator—J.S. Sarma moved into the office last week—might provide insight into why this is so.
India leads the world with up to 15 million new mobile connections every month. Yet, its broadband connections, a mere six million in all here, are growing slower than Vietnam, Belarus, Malta and Sri Lanka, besides lagging leaders such as China, Korea and major Western economies.
Unheard elsewhere, you can buy a mobile connection offering free incoming calls and cheap outgoing calls for less than Rs100 here. But a cheap Internet telephone card allowing you virtually free long-distance calls is available in corner shops in many countries, but not in India.
How is this possible when generally the same players dominate India’s voice and data markets? What does it say about India’s policymakers and regulators—the department of telecommunications (DoT) and Telecom Regulatory Authority of India (Trai)? Thanks to DoT, we have more competition in mobile markets than almost any country in the world. Trai’s success lies in ensuring that new players can start offering services relatively easily, by interconnecting with existing players at some of the cheapest rates in the world. This has worked better for voice than data.
There is ready demand for mobile phones. Raw competition in the large market for mobile calls has forced all companies to compete aggressively on price. Once a company sets up a mobile tower, it costs almost nothing to connect new subscribers. Given that close to 80% of subscribers—around 90% of recent additions—opt for prepaid cards, issues such as billing costs and bad debts are not a problem either. Not surprisingly, mobile call rates were lower than Trai’s regulated prices before the latter decided to forbear or leave them entirely to market. With entry of new players, they are falling further.
However, things are different for data services where markets are currently small. Many services such as health, education, governance and entertainment of interest to users—especially those in rural areas—require data and broadband-enabled networks. Only specific action from Trai can nurture competitive markets for data services, such as Internet telephony.
For telecom operators, Internet telephony is a risk to their revenues from long-distance services. Even though they are India’s largest Internet service providers (ISPs), not one, including government-owned Bharat Sanchar Nigam Ltd or Mahanagar Telephone Nigam Ltd, offers Internet telephony.
Smaller ISPs willing to offer Internet telephony must pay additional fees and offer a limited service, which prohibits Internet calls to existing Indian phone numbers. Result: Internet telephony is unavailable. It’s ironic that most calls rural users make are long-distance.
This is manifest market failure, which would classically lead regulators such as Trai to intervene. However, despite endless appeals and editorials Trai and DoT have failed to prevent market abuse by dominant players.
An equally challenging task for regulators is to create fair and robust process for allocation and pricing of radio frequency spectrum, a limited resource without which wireless communication is impossible. Internationally, spectrum is typically treated in a unified manner across telecommunication services, so that operators, not regulators, decide which services and technologies suit market needs best. Spectrum allocation and price reflect its scarcity and demand. Spectrum access is treated separately from service licences which authorize operators to provide services.
In India, the rules for spectrum—allocated when operators start service and seek more later—depend on several arbitrary parameters such as technology [for example, GSM (global system for mobile) or CDMA (code division multiple access)], number of subscribers, and the amount of spectrum previously allocated. This unorthodox approach continues even though it has caused many distortions, including an incentive to overstate subscriber numbers. Several decisions are still under litigation.
The endless controversy about third generation, or 3G, services, which can provide broadband services on the move, is proof that the regulator’s commitment to well known regulatory best practices is weak. Even a relatively obscure and technical subject such as 3G and broadband wireless access is embroiled in controversies that has remained unresolved for around four years.
India’s problems in telecom are not unique and competence to solve them is at hand. But, given the huge commercial interests and the potential conflicts, they need independent policymakers and regulators. This was the intention when Trai was set up as a statutory body, separate from DoT. Similarly, the Telecom Disputes Settlement and Appellate Tribunal, or TDSAT, was carved out of Trai to ensure there was an independent statutory agency to appeal Trai’s decisions. But, almost all Trai staff are ex-DoT employees and the new chairperson of Trai was the erstwhile head of DoT, who moved to TDSAT and wrote several arguably controversial judgements. At the end of the day, the challenge is independent regulation.
Mahesh Uppal is a director of Com First (India) Pvt. Ltd. Respond to this column at
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First Published: Thu, May 21 2009. 12 50 AM IST