Regulation-Competition, Operator Profits and Customer Welfare

The constant tussle between firms' profits, customer welfare (prices and quality) and the regulatory burden of balancing theses interests in the real world (less than perfect markets) is a worldwide phenomenon. 

A recent news item about Canada's Competition and Radio-TV and Communications Regulators issuing a joint statement to the effect that they would work together to "ensure access to services at competitive prices" also informs us that large  domestic firms are up in arms against the government's decision to allow foreign participation in spectrum auctions. The government justifies its decision as it finds that "Canadians pay some of the highest wireless rates in the developed world and that more players would help boost competition." Three big operators insist that "wireless rates in Canada are competitive with those in the United States." 

My question is that is U.S.A the correct benchmark?

Namibia's Progress in Telecommunications Regulation

The Communication Regulatory Authority of Namibia (CRAN) is following the footsteps of communications regulators across the world in terms of establishing the regulatory basis for licensing, universal service policy and fund, spectrum and digital dividend, infrastructure sharing, open access, number portability, green ICTs etc. This can be seen at "Namibia: CRAN Expects to Award More Licenses."

Newcomers on the scene have a wealth of international experience to learn from and to adapt to their own national context. Sufficient care to ensure competition and level playing field for all at the outset can prevent costly regulatory errors.

Need for Innovative Regulation-Indian Telecom Sector

On the occasion of the Confederation of Indian Industries National Telecom Summit 2013, The Hon'ble Minister of Communications & IT, the Chief of the Telecom Regulatory Authority of India and the Telecom Secretary have all highlighted important elements of the way forward to achieve the goals of universal digital inclusion and to boost the health of the flagging telecom sector in India. 

I am focusing more on the issues affecting the Market efficiency Gap in this blog post.

The need to concentrate of local R&D and design capabilities in manufacturing, the need to improve regulatory certainty including issues like M&A and spectrum and unified licensing were highlighted.  

The TRAI chief  stressed  "on  the critical need to use telecom infrastructure for public service in the fields of disaster management, financial inclusion and digital transactions, in the long term." (source: http://www.ciol.com/ciol/news/192836/government-committed-boost-telecom-sector)

Most importantly the telecom secretary stated that, "[i]nnovation in regulation is also important though legacy issues are there,..... there were complex legacy issues involved in order to fix unpredictability and ambiguity in the regulatory regime." (source: http://www.ciol.com/ciol/news/192860/innovation-regulation-farooqui)

In my view, taking stock of past mistakes, resolving legacy issues and creating a simple but  clearly refined regulatory framework for telecommunications can go a long way to rectify past problems and create a conducive environment for growth of Indian Telecommunications. Please see my earlier posts on Telecom Regulation.

Of course the legal framework of the  telecommunications sector is a part of the overall legal/regulatory framework of the economy which too needs looking at. One of these areas lies in the realm of competition policy. An overarching competition policy framework would prevent many a poor policy /programme from being accepted and would strengthen the ability of regulators and policy makers to make economically wiser decisions. I have written about this is an article titled "Airwaves, Incumbents and Good Governance - The Urgent Need for a Robust Competition Policy Framework" Also, please see my previous posts on Competition.

Effective Regulation the key to Bridging the Market Efficiency Gap

 This is a recurring theme that I will be writing on. Its importance lies in the fact that by bridging the market efficiency gap we are economizing on time and cost involved in universal service and 100% digital inclusion. In the absence of effective regulation any attempts towards the latter would only bring short term and non sustainable gains. 

As far as telecom regulation in India is concerned it would appear that we need to take some brave steps to reconcile and simplify our licensing conditions and spectrum regulation. We are at present caught in the trap of  self created rigidities  that are not only at times outdated but often counter productive. The time is right as the telecom sector is at its lowest ebb and even the recent positive announcement of 100% Foreign Direct Investment (FDI) in Telecom is being viewed pessimistically on account of the overall regulatory environment. Please see "FDI Limit Aside, Raise the Bar for Governance"

An article titled An" Emergency Call from the Telecom Sector" appearing in the Business Standard on 17.7.13 draws attention to these issues.It highlights the need for bold decisions akin to the migration policy of 2003. It rues what it considers a tendency on the part of the telecom department to impose maximum penalties for fear of being accused as being partisan to telecom operators. 

Decision makers would find it much easier if rules were clearer.

The state of affairs today can in fact be gauged from the confusion and excessive recourse to litigation that characterizes our telecom sector today.  For example, there is  confusion surrounding the legality of intra circle roaming (ICR) and the distinction between ICR in the case of 2G and 3G licenses. The Controller and Auditor General of India cannot perhaps be faulted for criticizing actions that can be interpreted as being in contravention of stated policy/regulation which is in turn is often ambiguous and hence subject to interpretation.

The improvement of regulation and regulatory capacities is the order of the day. The former is relatively easy as international best practices and experiences can guide us, the latter requires a much broader spectrum of measures extending beyond just the telecom sector.

Talking about regulatory skills and capacities, another news item about the difficulties being faced vis-a-vis Italian communications Regulator's attempts to reduce access charges for fixed line grids, a common trend across EU, indicates that the overall institutional environment of an economy affects implementation and outcomes even where regulation is sound. I had written about this earlier at  http://ictsforall.blogspot.in/2013/07/closing-market-efficiency-gap.html

The Market Efficiency Gap

As I have mentioned earlier in my post at http://ictsforall.blogspot.in/search/label/Universal%20Service, Universal Access (UA)/ Universal Service (US) as obligations or policy instruments should ideally come into play when  in spite of effective regulation, liberalization and competition being in place,  the still market fails to serve certain areas or sections of population. The latter is known as the  Actual Access Gap and may arise on account of geographical or socio-economic reasons etc. The former are instruments to close what is known as the Market Efficiency Gap.

Source: WDRP 432(2002) as modified by Archana.G.Gulati 

Some developed and many developing countries may however find themselves in a less than ideal situation where USFs are funding more than the actual access gap on account of failure to  achieve market efficiency.  

An important aspect of effective regulation in today's world is spectrum management. OFCOM's liberalization of spectrum policy in consumer interest a reported at http://www.mobileworldlive.com/uk-regulator-gives-green-light-for-4g-in-2g3g-spectrum is an example of such effective regulation. An article titled "Key to robust telecom policy: Place markets above command and control" that appeared in the Economic Times on July, 8 2013 may also be of interest to readers. It highlights  inter alia the requirement of effective spectrum management in India including flexibility of its usage across technologies.