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| TRAI needs more regulation, less authority |
| Wednesday, 16 May 2012 | |
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It is welcome news that the next chairperson of the Telecom Regulatory Authority of India (TRAI), Rahul Khullar, is an economist. Recent experience shows that TRAI has functioned less as an economic regulator and more as an authority, and prioritized administrative responsibilities over more specialized and nuanced ones. The challenge for TRAI is to deliver to India’s economy, and Indians, the full potential of increasingly powerful telecommunications technology. This requires a consistent framework that offers an incentive to invest in networks of adequate capacity, to support services of interest and a robustly competitive market that can force quality up and prices down. Consequently, measures that make rolling out networks more expensive, increase compliance costs, and scare serious market players would be unacceptable unless they offer tangible benefits. Implementing and enforcing license conditions inevitably brings a responsibility to protect government revenues. However, boosting the exchequer is not a regulatory task. By recommending an auction of spectrum that might generate Rs 7 lakh crore (7 trillion) for the government, TRAI is being more loyal than the king. Following the cancellation of 122 licenses by the Supreme Court of India, TRAI was admittedly duty-bound to recommend a transparent auction to determine the market price of spectrum. However, such a price is not unique and depends on the design and goals of the auction. It could sky-rocket if the amount of spectrum being auctioned is small, terms of payment are onerous, duration of usage is short, and the rollout conditions are tough to meet. It could be low otherwise. TRAI’s perverse auction design can deliver only one winner, i.e. the government exchequer. If the auction fails, as many fear, government could lose too. There is criticism of the proposed high reserve prices. Indeed, winning bids could be higher and hurt more. A low reserve price helps little in a competitive market since it has little influence on final bids. Starting high can prevent collusive low bids. This is unlikely in India’s market with more players than in any other country. However, if this is a risk, TRAI can tell us how and identify the rogues. High reserve prices deter new players from bidding and could, theoretically, make mischief easier. TRAI’s estimate of the impact on prices is misleading. Prices for infrastructure-based services are not based on operator costs alone. Like in airline tickets, the choice may be between an empty seat (unused infrastructure) and no revenue, and tangible revenues from a hugely discounted seat. TRAI’s assumptions about growth in traffic and revenues from voice and data have been widely contested. It ignores substantive costs in infrastructure that reframing, for example from 900MHz to 1800MHz, will cause. More worryingly, it ignores that higher costs make rural areas, which need urgent and substantive investments, even less attractive. There are other examples where TRAI prefers being an authority instead of a regulator. It has opposed an exit strategy for the sector since, it says, all licenses have provision for their surrender. This misses the context of the recommendations—post the large influx of players, many of whom failed to roll out services and the Supreme Court’s criticism of DoT and TRAI too when it cancelled 122 licenses. A regulator with an interest in quality of investment, the pressure on spectrum caused by dubious competition in the market and the unique role of wireless for India with virtually no fixed line or broadband would, arguably, see the larger picture. It would propose creative incentives for non-serious players to exit, freeing up committed spectrum in order to secure future growth. Consider also the attempt of private 3G companies to enter into roaming arrangements to improve their service coverage. DoT claimed this was illegal. TRAI agreed. A final judgment on this is awaited. However, TRAI failed to see consumer interest in such a roaming arrangement since 3G seems the only realistic way of delivering broadband to a predominantly mobile market. The government too is not offering more 3G spectrum for auction. 3G operators have already paid over Rs 60,000 crore for spectrum and consumers need seamless data services. There was clearly need for an alternative solution, pending resolution of legal issues. Similarly, TRAI’s recommendations for unified licenses lack rationale for the types of licenses or the fees their holders must pay. The unorthodox interpretation of class licenses and authorization is without precedent. Most mature regulatory regimes implement transparent market-based methods of allocation and pricing of resources like spectrum and phone numbers. Market entry is unrestricted but abuse is tightly controlled. This provides the framework for players to expand markets and innovate on services. In contrast, TRAI’s bureaucratic approach proposes categories of licenses that confuse even the DoT! TRAI’s work needs rigor and a sector strategy. It has raised costs for most players. TRAI’s own defense of its proposals is not that they offer tangible benefits but that detractors are exaggerating price hikes. The mess in licensing is compounded with new fears about future growth. The appointment of an economist chairperson is an opportunity to review TRAI’s decisions and work towards a credible and predictable framework that protects the interests of consumers and players. – This article has been authored by Mahesh Uppal, director and telecom consultant - Com First (India), and it appeared in the May 16, 2012 edition of The Financial Express |
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