Fixing the Market Efficiency Gap in India

I had mentioned in my post titled, "Regulate in Haste Repent at Leisure" about TRAI's recent recommendation in favour of  a considerable reduction in reserve price of spectrum and those relating to permitting spectrum trading. I had stressed that what is important is that all regulation must be based on sound economic analysis placing consumer interests above all. The latter includes a healthy, viable and competitive telecom sector. Another related post is "Regulate in Haste Repent at Leisure-Comments from EU and India" These are all under the labels Telecom Regulation & Competition

A lot has been said about the regulatory deficit in India. A recent article by Sanjeev Aga literally agonsies about this issue in relation to the Department of Telecommunications processing of TRAI's above mentioned recommendations.

A long quote from this article is added here as the writer is interesting and eloquent in his anguish:

"But let us even assume this Trai exercise eventually ends well. Would that address sector issues? Unfortunately, no. Consider policies that allow intra-circle roaming before an auction, and disallow it afterwards. Or those that confer technology-neutrality in 1999 and withdraw it in 2012 in the name of unliberalised-spectrum. For the jargon-challenged reader, spectrum liberalisation and technology neutrality mean the same thing (the Danish Business Authority website offers a clear explanation of this). Such ad-hocisms abound because policies are not supported by robust policy institutions. The better type of investors watch policy, but they derive confidence only from the quality of institutions behind the policy.

Planning Commission member Arun Maira worries that since we are not fixing institutions, India is falling apart. A complex, high growth, trillion-dollar economy, with money power sloshing around, has outgrown the governance model of the 1950s. Among the handful of quality policy institutions we have is the Reserve Bank of India, and that is a product of the Raj. The notion that ministers and ministry departments should run sectors such as hydrocarbons, aviation, telecom, power, or railways is anachronistic. The DoT has capable Indian Telecom Service officers who ran fixed line operations in Bharatiya Sanchar Nigam Ltd's earlier avatar. A quirk of fate finds them designing policy for mobile telephony of tomorrow for which they have been provided neither exposure nor training. With no symmetry between authority and consequence, between work and appreciation, self-respecting people must resent being reduced to their present pass. When spewing out penalty notices becomes a defence mechanism, you sense that these people may be present physically but they have seceded emotionally! What is true of telecom is equally true of several other sectors. The old is dying and the new cannot be born!

Having two policy institutions for telecom, DoT and Trai, was always a crazy idea, an outcome of confused intention and timid disposition. Like in every advanced international jurisdiction, telecom policy formulation should have been tasked to the regulator from its inception. Now, better late than never! But for this Trai will have to step up its game. Amending the Trai Act is a mere first step. The regulator would be tested on its sector knowledge, in widening the talent pool to attract the best, in the quality of its output, in the confidence inspired in investors, in the moral authority exerted, and in the thought leadership provided to India and to the world.

India is at a juncture where the absence of quality governance institutions is strangling growth. This has been the single biggest cause of the economic downturn. Second-generation reforms are not about mindlessly repeating what was done 20 years ago. They require dismantling mental blocks and building quality governance institutions for at least half-a-dozen sectors, of which telecom is one. This fond wish must now await any new government. Meanwhile, the Telecom Commission and the Empowered Group of Ministers should rally in support of the Trai recommendations."

I have written about a possible way forward-Providing a competition policy framework to our regulation. The article is titled "Of Airwaves, Incumbents & Good Governance-The Urgent Need for A Robust Competition Policy Framework"

Regulatory Tug of War

I found a post titled "Here’s how the telecom industry plans to defang their regulators" very interesting. In real world economics equilibrium is rarely stable. It is generally dynamic. So it would seem is the empowerment/dis-empowerment of a telecommunications regulator. 

In India, the Communications & IT Minister has criticized the Deptt. of Telecommunication's tendency to impose heavy penalties regardless of the nature of default by operators and has suggested that these powers be removed from bureaucrats and be given to TRAI. The TRAI is often at loggerheads with the Competition Regulator CCI, on jurisdiction. However, TRAI has recently come to the rescue of a  beleaguered telecom industry with its recommended reduction in reserve prices for spectrum. See "Regulate in Haste, Repent at leisure" under the label Telecom Regulation.

It would seem from the above mentioned post that USA's telecom giants want to remove/reduce FCC's powers to regulate issues relating to privacy, competition and net neutrality. While there motives are obviously their commercial interests, all these issues have an important bearing on consumer welfare which should be the primary concern of the sector regulator. Ex ante competition issues too would normally lie in its realm.

Regulate in Haste Repent at Leisure

There are many stories in Indian newspapers at present wherein one can read about the Telecommunications Regulator's recent recommendation in favour of  a considerable reduction in reserve price of spectrum and those relating to permitting spectrum trading. As expected, some are and for and others against these recommendations. Also see "Cheers for old telcos, worries for new" and "Pragmatic way forward."

Either way, in my view, what is important is that all regulation must be based on sound economic analysis placing consumer interests above all. The latter includes a healthy, viable and competitive telecom sector.

This brings to notice the recent controversy over TRAI's 12 minute cap on  advertisements in its role as a broadcasting regulator. The decision is at present subjudice with TDSAT (Telecom Dispute Settlement and Appellate Tribunal) . Now the Ministry of I & B is said to be collecting data on potential revenue losses as a result of this measure. It would be much better if this exercise (and such groundwork in general ) was done before the regulator recommends and the government accepts its recommendations. 

An extract from a news item is placed below which is quite self explanatory:

In May, the Telecom Regulatory Authority of India (Trai) had said commercial advertising limits for TV channels should be capped at 10 minutes. A two-minute-an-hour cap was allowed on ads promoting the channels or their shows, putting the overall ad cap at 12 minutes an hour. Meanwhile, I&B Minister Manish Tewari said a solution should be found through consensus.

“There is a need for both the regulator and the stakeholder to work out a road map regarding the ad cap. There cannot be a regulator if there is no stakeholder and the stakeholders have said they would suffer a loss if the rule comes into effect, while the regulator is doing what they have to,” said Tewari.

I think we need to take regulation much much more seriously in this country as much of our recent economic woes have been identified as arising from inadequate regulatory capacities and fairly clumsy regulation with serious negative repercussions.

Another article which is worth reading on this subject is "Regulators Must Promote Not Strangulate Industry"  in today's Times of India. It speaks about the above issues and correctly highlights the need to improve regulation in all sectors in India. 

Please see my previous posts on this subject under Telecom Regulation.

Achieving Universal Service and Digital Progress in a Connected World.

If readers have ever wondered about the title of my blog. Here is an answer.

The Mint today carries an article about "Indian telcos' 4G Plans get[ting] an unexpected boost." This article highlights the benefits of China Mobile Ltd's plans to "purchase equipment worth more than $7 billion for a network based on a new technology standard, boosting its popularity, and potentially increasing the availability of phones and network equipment based on the standard and lowering their costs."

So far, Indian operators desiring to roll out pan India 4G services have been constrained by high cost of equipment and handsets. They possess 4G TD LTE spectrum. This is different from US and European operators' 4G LTE-FDD services meaning that much of the international manufacturing is based on the FDD spectrum standard. China's interest and patronage will give the former technology's supply and overall eco-system the required critical mass helping reduce prices and increase range and availability of equipment.

I think that the question stands answered. It is a "connected world" as far as universal access to state of art telecom services goes.

Unbundling in Access, Spectrum, Roaming, Cross-Holding, International Bandwidth Sharing -Telecom Regulation Potpourri

I will begin with a tit bit from New Zealand. I have written about NZ's National Broadband Plan and ongoing Review of its Telecommunications Act in a  post titled "More on Broadband Networks and Ecosystems-New Zealand's efforts." An article,  "Telecom unbundling key to regulator's copper conundrum." suggests that the tussle between lower wholesale prices for access to copper lines  to give customers' cheap services and "protecting the government-funded build of a nationwide fibre network" or encouraging the transition from copper to optic fibre. The regulator's consultation paper says that "[o]ur current view is that taking account of dynamic efficiencies, a UBA price above the median will best promote competition for the LTBEU (long-term benefit of end-users),"  

News from Europe suggests that the EC is finding ways to promote a genuine single telecommunications market. This would include a common authorization for service providers to operate throughout EU. Also included would be harmonization of inputs:  

"To deliver equivalent services across the EU, operators need harmonised access to basic “inputs” like fixed networks or spectrum. In particular this could involve:

(a) More coordination of spectrum assignment for mobile/wireless services, in particular to align timing and specific authorisation conditions, so operators can more easily organise pan-European activities. This would not need to entail pan-European licensing, and revenue generated from spectrum auctions/sales should remain with Member States.

(b) Harmonised “access products” – which would make it easier in practice to offer services that run across fixed networks in several Member States."

Removal of roaming charges across EU has been in the news lately.There is also talk about a single telecoms regulator with its many pros and cons.

Indian newspapers today write about the continuing clash between interest groups as regards spectrum re-farming and auctions and the likely fall out the new unified licensing norms with the forthcoming ban on same Service Area cross-holdings  wherein formal m development ergers are likely as between RCOM and RTL

And last but not lease an interesting development-cooperation  in South Asia in terms of leasing of international bandwidth. It is reported that India plans turn to Bangladesh for meeting its global telecom connectivity requirements. "It plans to lease nearly 100 gigabytes (GBs) of international bandwidth from two state-owned suppliers in Bangladesh."Bangladesh also proposes to leverage its proposed OFC links with India to address the international connectivity needs of landlocked SAARC countries like Nepal and Bhutan, (but the Indian government is yet to take a firm view on this.)"

Critiques claim that India should create its own cable landing infrastructure.

Wise Regulation, the Order of the Day

For quite a few days now Indian media is carrying the story about the sand mafia and the actions of an honest civil servant to prevent illegal mining. A though provoking viewpoint  has been presented on this issue in an article titled, "Between rock, sand and a hard place" in the Times of India on August 11, 2013. It states that, "[i]n several areas, Indian rules and regulations make honest business impossible. The only choice is illegal business or no business." The author of this article draws attention to the shortage of sand for a booming construction sector on account of " licensing and environmental bottlenecks." The latter creates an artificial scarcity that allows the mafia to step in and profit.I will leave readers to judge the merits of these arguments for themselves. 

Why am I writing about sand and construction? 

That is because in my view it reflects the same underlying problem that is  hampering economic activity in the country today. In a developing country that  is (let us accept it), still below par as far as institutional and administrative capacities are concerned, regulation has to be realistic, practical, simple yet sufficiently detailed in order to be unambiguous, leaving little room for arbitrariness/misinterpretation. It should be forward looking so as to not require too frequent review, but it should be reviewed when need be based on well laid down criteria. Most of all it should keep consumer welfare at its focus. 

Telecom Regulatory Authority of India's Chairperson (TRAI)  has recently commented on the controversial 3G roaming pacts among three large mobile operators in India. According to the Department of Telecommunications, these pacts replicate the characteristics of Mobile Virtual Network Operators' (MVNO) operations, something that is not yet permitted in India. The operators by sharing spectrum and infrastructure were able to provide 3G services to customers even in telecom circles where they had not won spectrum in the 3G auction. 

The TRAI Chief is quoted as having said that, " in a situation where there is no more spectrum available, it ay not be possible to continue with a regime where pacts for intra-circle roaming (ICR) in 3G services are not allowed..............This is a Catch-22 situation. How is it (closing down ICR) a solution?” 

The article on this issue goes on to say that,

According to [Mr] Khullar Indian law treats spectrum as a holy cow for some reason.

“I can understand that you don’t want to cap gains on assigned spectrum which is administratively allocated. But if everyone is buying spectrum on auction, why not permit trade in it? These are issues on which the government should no longer brook any further delay. A decision needs to be taken,” 

Again, I leave it to readers to form opinions. I would just like to highlight that I agree with the TRAI Chief that corrective regulation is the order of the day if consumer welfare and not regulation for regulations sake is our aim.

I also invite readers to go through previous posts on Telecom Regulation and the Market Efficiency Gap to appreciate the importance of effective regulation for growth and equity in telecommunications penetration.