1. Column: Telecom’s cross-connections

Column: Telecom’s cross-connections

The sector is riddled with the regulator and policy-makers working at cross-purposes

Updated: February 24, 2015 11:33 AM

It is axiomatic that creating robust and independent regulatory institutions in the Anglo-Saxon tradition is challenging and long-drawn. The significant tasks these institutions perform include policy-design, rule-making, monitoring and enforcement, all in the name of greater public good. Discharging such functions by way of regulation is critical to good governance and often determines the quality of sectoral outcomes.

Telecommunications in India, among all infrastructure segments, best reflects the advantages of having created a governance structure that includes an independent regulator, easier rules for market entry, a mechanism for funding of universal access, a framework for management of scarce resources, access to interconnection and bottleneck facilities, and a dedicated dispute settlement tribunal, TDSAT.

One would have thought that after 17 years in existence, regulatory ‘turfs’ in telecom would be better-defined, processes would have matured and conflicts reduced to a minimum, if not eliminated. Alas, one would have to think again. Last week, the Telecom Commission, the apex body of the Department of Telecommunications (DoT), rejected the Telecom Regulatory Authority of India’s (Trai) recommendations on the base price for the February 2100 MHz spectrum auctions, calling for a review and deeming R2,720 crore per MHz an amount too low. Under current rules, reserve prices are sent by the Telecom Commission to the Union Cabinet for final approval.

Telecom

Students of auctions might well ask whether it is necessary to ex ante spend so much time on fixing the reserve price, when a well-designed auction would perform at least as well, especially in the supply-constrained scenario that prevails currently. Spectrum assignment has become a contentious and litigious issue of late—perhaps the reason for the DoT’s cautious approach on reserve price. Everyone wishes to avoid allegations of having caused loss to the exchequer. But the rejection of Trai’s recommendations by DoT also reflects the unease with which the two institutions interact and relate to each other. Were informal channels of communication open between the two, things would perhaps not have come to this pass. The latest episode adds to the growing list of institutional conflict that afflicts the sector—ironically, Trai itself is a product of confrontation between DoT and private operators.

Trai’s first avatar materialised by way of a rushed ordinance in 1997 following the Supreme Court’s rebuke that private investment in telecom cannot be a serious aim of the government as long as DoT was regulator, policy-maker and monopoly service provider all within the same legal entity. DoT reluctantly gave up its regulatory functions to Trai, but in practice did not cede much ground to the newly-created regulator that was attempting to establish itself. The gory details of what happened need not detain us here—suffice it to say that there were bruising collisions between Trai and DoT during this time. For example, Trai and DoT differed on whether it was necessary for the latter to consult Trai in exercise of licensing powers. Even when it did, the recommendations were not binding in any way on DoT, a situation that continues today. The accompanying table presents the fate of a number of recent recommendations made by Trai on important issues—and it does not make happy reading.

The excessive discord between DoT and Trai and the litigation that followed led the government to dissolve Trai and its adjudicatory powers were given to a special tribunal for telecom, TDSAT.

TDSAT, born in 2000, is another institution in telecom that is a child of conflict. The original idea in setting up TDSAT was that it would fast-track telecom disputes that were frustrating telecom liberalisation due to the inherent pauses in court proceedings. TDSAT, conceived as an alternative to the High Court, added another layer in the institutional framework but has not led to jettisoning the involvement of the High Court in telecom disputes.

Today, Trai makes recommendations, issues directions and regulations and all its decisions are rightly subject to judicial review, introducing a reasonable safeguard to regulatory authority. Its recommendatory role, however, is often Sisyphean (as shown above), and its regulatory authority was challenged by TDSAT, which ruled that Trai did not have the overriding power to fix interconnection prices. Interconnection regulation, the lifeblood of telecoms, was stuck in limbo for years following the TDSAT ruling. This was only resolved in December of 2013, following a Supreme Court judgment that reconfirmed Trai’s regulatory power and held that its regulations could only be challenged in the High Court, bypassing TDSAT.

Numerous other examples can be listed to highlight the turf wars between institutions or battles by incumbents seeking to prevent competition and preserve existing privileges. Institutional developments within the sector have been a product of litigation and conflict, not purposive and robust. The courts have become ports of first call and the resultant delays have meant that the sector bears heavy costs inflicted by an inefficient institutional framework. For example, the 2G saga caused a 400-day delay in auctions. The upcoming spectrum auction has already been delayed by over a month. Such delays create uncertainties over operator cash flows and adversely impact fresh investments.

The government must now decide. It can choose to aid reform by strengthening the regulator’s authority and reducing the institutional overlap that diverts resources to turf battles. This cannot be left up to the courts because they lack the time and the tools to do the job. While TDSAT was created to hasten litigation within the sector, the Supreme Court decision reaffirming Trai’s regulatory authority reintroduces High Court into the mix. The inevitable question that presents itself is whether any institutional mechanism can be put in place to pre-empt such expensive and time-consuming dispute resolution processes that involve the judiciary and sometimes ministerial groups. The Nariman Committee’s (2000) recommendations for regulatory convergence is an idea whose time has come. But it will require massive amounts of political will. In the absence of a clear resolve to do so, the government’s best plans for a converged regulator would be plagued by the same set of problems that currently unsettle the sector—delayed decision making in an environment of polarised interests and points of view.

By Rajat Kathuria & Parnil Urdhwareshe

Assisted by Mansi Kedia, research associate and Nilesh Basu Roy, research intern, ICRIER

Kathuria is director and chief executive and Urdhwareshe is research assistant, ICRIER. Views are personal

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