Regulatory independence

Regulatory independence
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First Published: Sun, Aug 19 2007. 11 36 PM IST
Updated: Sun, Aug 19 2007. 11 36 PM IST
While India celebrated its Independence Day and the newspapers were full of similar- looking advertisements, the news that caught my attention was about Trai cracking the whip on the SMS rate hike. A couple of leading mobile operators have raised tariffs for local SMS, the newspapers reported, and Trai, the telecom regulator, has warned them to roll back the tariff hikes. At this stage, I am not debating whether the hikes were justified or not. The issue is of how an independent regulator (and in most cases, the government) behaves when some operators decide to raise tariffs.
A few years ago, Trai decided to put mobile tariffs under forbearance. Simply put, it meant the regulator felt that tariffs were at reasonable levels and that there was sufficient competition in the market. Of course, the regulator keeps a watch on market behaviour even under forbearance, but desists from interfering unless market conditions change considerably. So, does an increase in the tariff of a value-added service constitute a major change in market conditions that necessitates the regulator’s interference?
No. Unless, of course, this reflects collusion on the part of the operators in the market. But the remedy to collusion is not price setting, rather more severe measures to break the collusion/cartel.
Given that the Indian mobile sector has at least six operators in each circle (seven in many cases), and there is fierce competition among many of them, we should rule out collusion. In any case, in this instance, it is two of the six operators who have increased tariffs. Did that necessitate the regulator announcing within a day of the tariff hike that they had “decided to rethink (our) strategy” of forbearance? Should a 20% hike in SMS rates by two operators (the No. 1 and No. 4 players) have caused such a sharp and immediate reaction from the regulator? Should an independent, economic regulator behave in such a (almost) populist manner?
The government has in the past been guilty of several times undermining the independence and role of the sector regulators by making announcements or stating expectations about market tariffs. The recent “expectation” of the finance minister with regard to hike in interest rates and the earlier announcement of the telecom minister to reduce STD rates were aimed at the galleries, with little regard for the appropriate regulatory bodies. It is a little surprising and very disappointing when the regulator also makes such populist statements and jumps to conclusions without adequate analysis and debate.
Does the tariff hike by two operators (for a particular service) constitute a failure of market forces and cause a review of forbearance? There are at least four other operators that have not increased tariffs and provide adequate choice to customers, in case they are truly dissatisfied or impacted by the tariff hike. Of course, the non-implementation of Mobile Number Portability is a deterrent for customers to churn, but in the pre-paid category (in which the tariff hike has occurred), there is already a high level of churn and the “number” has not been found to be a major exit barrier.
Trai has many other critical issues that it needs to focus on, issues that would have long-lasting impact on the industry, market growth and customer service. Ensuring adequate spectrum allocation, sorting out interconnection issues, driving broadband penetration, attacking BSNL and MTNL’s monopoly in the local loop, phasing out of subsidies to the incumbents and preparing for convergence and NGN require greater attention of Trai’s limited resources. It is up to Trai to decide what is important—a more dynamic and competitive telecom industry or a 20% hike in SMS tariff by two operators.
(Kasyapa Das is a telecom sector executive. Comments are welcome at yourviews@livemint.com)
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First Published: Sun, Aug 19 2007. 11 36 PM IST
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