Home > opinion > Avoid the temptation to overregulate telecom
Illustration: Jayachandra/Mint
Illustration: Jayachandra/Mint

Avoid the temptation to overregulate telecom

There are good reasons for allowing the struggle for survival and market share to play out in its entirety

India’s telecom sector is in the midst of a painful reconfiguration that isn’t likely to end anytime soon. The launch of Reliance Jio in September 2016 started a winter of discontent for telecom companies that has stretched well into this summer. The consequent jockeying for market position and appeals to industry regulators were predictable. But those regulators must bear this in mind: While the financial strain on telcos and churn in the market may make regulatory intervention tempting, a heavy-handed approach would be counterproductive.

As per investment and brokerage firm CLSA, mobile industry revenue was down to Rs1.88 trillion in FY17 after an uninterrupted upward graph for the previous six fiscal years—from Rs1.19 trillion in FY11 to Rs1.93 trillion in FY16. And it’s projected to decline further to Rs1.84 trillion in FY18, with profitability down across the board. This comes at a time when sector incumbents are bearing a heavy debt burden—Rs4.85 trillion or thereabouts at the end of last year—and average revenue per user is plummeting. Unsurprisingly, state-owned banks are wary given their stressed balance sheets.

Little wonder the Centre is taking keen interest. An inter-ministerial panel was constituted in May to examine systemic issues to do with viability and repayment capacity in the sector, as well as to provide recommendations for resolving stressed assets. It also has policy reforms and strategic interventions on its checklist. Meanwhile, Trai (Telecom Regulatory Authority of India) issued a consultation paper in February on assessing predatory pricing; earlier this week, it said that it would reveal predatory pricing rules in the next six weeks or so. Jio’s rival telcos had also broached the issue last week when they called for a floor price for voice and data tariffs. Jio, meanwhile, has approached Trai with the complaint that existing telcos have broken tariff rules with some of the plans meant to prevent erosion of their customer bases.

In this febrile atmosphere of accusations, counter-accusations and market upheaval, regulatory overreach would be easy. But there are good reasons for allowing this struggle for survival and market share to play out in its entirety.

Jio’s entry into the market, with its strategy of offering free voice and charging only for data, may have compelled other telcos to follow suit—but it was a catalyst for structural shifts in revenue that were always coming. In 2011, 3G data consumption per user stood at 338 MB (megabytes) per month. By 2016, it had grown to 753 MB per month—which, however, remains low by global standards. And according to the Nokia Mobile Broadband Index, 3G data traffic grew 85% in 2015, driving a 50% increase in overall year-on-year data traffic. The net result is that of the almost 220 million broadband subscribers in India as of October 2016, 200 million used mobile devices or dongles. This, however, incorporates a large gulf between urban and rural areas when it comes to penetration.

On the hardware front, International Data Corporation predicts that India will overtake the US as the world’s second-largest smartphone market this year, with high growth rate to be maintained over the next few years thanks to the low—and falling—average price of 4G-enabled handsets.

There are a few takeaways from this. Firstly, there is strong data appetite in India. Secondly, there is a lack of adequate exploitation of this appetite—and corresponding space for market growth. Thirdly, developments in the hardware market will facilitate this growth when allied with the right telco approach. All this—seen against a backdrop of global technological shifts—points to the inevitability of telcos’ revenue streams shifting towards data in the future. The fact that some 75% of telcos’ revenue came from voice tariffs before Jio’s entry, meanwhile, points to the necessary pain of the process. Admittedly, Jio’s entry into the market has compressed the time frame for making the shift. But, as Sundeep Khanna has pointed out in his column in Mint, incumbent telcos have only themselves to blame. Mukesh Ambani’s intentions have been clear for years; telcos have not adequately utilized that time.

Against this backdrop, the problem with heavy-handed regulatory intervention is apparent. Trai has sweeping powers under section 11(2) of Chapter III of the Telecom Regulatory Authority of India Act, 1997, under whose aegis the Telecommunication Tariff Order (TTO), 1999, was notified. Wisely, the regulatory body has chosen the principle of “forbearance" over “fixation" in the years since. Changing that approach now with interventions for so-called predatory pricing—extremely difficult to assess in a market where consolidation was overdue and the current drastic decline in tariffs is likely to self-correct in time given the financial burden on all telcos, including Jio—or too strict a reading of “non-discrimination" among users for pricing offers would be a mistake.

This does not mean the Centre has no role to play. If the telcos have relied on debt-driven growth, successive governments, in their obsession with transparency and revenue maximization, have squeezed telcos hard with spectrum auctions. Meanwhile, in its quest to keep up with technological changes and protected consumers, Trai has created regulatory uncertainty on occasion with repeated changes in rules and policies; the TTO has been amended 62 times. There is thus a case to be made for the Centre to give telcos relief by deferring spectrum payments and reducing the burden of high telecom levies. Trai, meanwhile, must maintain policy stability in conjunction with strong and fair regulatory oversight.

But beyond that, it must stay out of the way. When it comes to refereeing competition, predicting new uses of information technology and their value—or the shape of the market best suited to delivering them—is next to impossible. Let the telcos sort it out.

Should Trai intervene to prevent predatory pricing? Tell us at views@livemint.com

Subscribe to newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Click here to read the Mint ePaper Livemint.com is now on Telegram. Join Livemint channel in your Telegram and stay updated

My Reads Logout