2. Ringing In The Changes

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A Telecom Settlements Commission should bury the ghosts of the past and focus on the future

By Jaithirth Rao

Photo: Tushar Mane
Photo: Tushar Mane

CELL PHONES are supposed to represent the coming of age of the Indian economy. Here is a service, not reserved for the elite, one where India’s much talked about “base of the pyramid” actually enters the market. This India may not be shining, but it is certainly listening to caller tunes with unabashed frenzy. Hundreds of millions who previously survived outside the market, are now enthusiastic participants.

The social revolution that cell phones have brought about is so profound and so recent that the social psychologists and chroniclers who like to “analyse” these phenomena to death are still absorbing the shocks. Migrant workers in Gujarat, who are far from their native Odisha, can now keep in touch with their families. Lost hikers in Ladakh can communicate with loved ones. TV addicts in their thousands are phoning in their Indian Idol choices. SMSes are giving us access to customer-savvy astrological pundits. One marketing professor has drawn our attention to the fact that the largest sellers of music are not CD companies or even piracy websites. They are telecom companies with their ubiquitous caller tunes. And, of course, Indians have invented the infamous ‘missed call’ — a clever way to deprive phone companies of their revenues.

One of these days, our august Planning Commission (as always behind the times) will tell us that there are more cell phone users in India than registered PDS users, ration-card holders or Mahatma Gandhi National Rural Employment Guarantee Act workers.

Till a short while ago, the cell phone revolution was talked of with great pride. It demonstrated that “unchanging” India had, in fact, changed and that we were a vibrant market — indeed one of the most exciting in the world. We were all praise for the telecom companies who were opening up the remotest corners of rural India and who were empowering the poor, connecting the middle classes and enriching the already rich.

illustration: Sudeep Chaudhary
Illustration: Sudeep Chaudhary

And then, the taint of shame and scandal hit the sector. Suddenly, from being poster boys of shining India, all these companies became the shining stars of crony capitalism. There is nothing that they can do right. Many have acquired “precious” spectrum through corrupt means; others are “hoarding” spectrum; some are “misusing” their 3G licences by co-operating across geographies; all are “understating” revenues in order to reduce payments to governments; and different players are producing different figures about their subscriber levels in order to get access to spectrum.

There is every danger of India’s telecom revolution falling into the repetitive pattern that dogs our history: failure to live up to one’s promise and potential; again missing the development bus — both literally and metaphorically; once more plunging into gridlock and paralysis that is the recurring nightmare of our country; all players blaming each other — no one is at fault or all are at fault. History is revisited and revised, as is found convenient, for each actor.

The initial switch from lumpsum to revenue sharing was wrong; grandfathering the CDMA players was wrong; hoarding of spectrum is the real problem: auctions are good because they are fair and they raise resources for the fiscal (which can be wasted on sundry government activities!); auctions are bad because they force the telecom operators to raise prices for users; mergers are good because we have too many players; mergers are bad because they will reduce competition; foreign investors are upset because they are losing licences that they bought into in good faith; foreign investors are relieved because they know now that you don’t have to indulge in corruption in order to do business in India; the Telecom Regulatory Authority of India (TRAI) is toothless and has been captured by the government; TRAI is toothless and has been captured by selfish corporations; the list is endless. In the meantime, ubiquitous coverage and connectivity, which can enhance our productivity and wealth levels, may and almost certainly will suffer.

WHEN THE situation deteriorates into an impasse like this, the obvious metaphor to fall back on is the famous Gordian knot, which was all tangled up and which the young hero Alexander cut with one stroke of his sword. Is there a magic sword that we can think of? If we admit to ourselves that deregulation is always a complex affair and that the tangled state of affairs arises as a result of the cumulative effect of actions over years, then we can start looking at a solution that has a fighting chance of succeeding. After all, no one wants to go back to the era when we waited five years for a telephone connection, when we needed the sifarish of an MP to get a phone, when we paid a fortune to make ‘trunk’ calls.

It’s high time that the government created a Telecom Settlements Commission with persons of integrity

We do recognise that the spreading telecom revolution is good for all Indians — not just those of one class. We do recognise that competition is good and has brought the cost of communications down — a low price point is absolutely vital in ensuring that the masses benefit from market access. We do recognise that a flourishing, prosperous, well-capitalised telecom industry is good for the country and is incidentally also good for our fiscal situation. But even as we recognise all of this, we do not know what to do. Every discussion only opens up hyperbolic exchanges among people with polarised points of view usually tied to whether they are beneficiaries or not.

In this writer’s opinion, it is high time that the government created a Telecom Settlements Commission (TSC) comprised of persons of unquestioned integrity. The TSC should put a closure to all the events connected with the sorry ‘history’ of how we got here. It should impose fines on some operators; it should withdraw some licences; it should allow some players to bid again; it should transparently reallocate spectrum and it should set the stage where the industry can progress in an atmosphere of certainty, clarity and public support rather than public cynicism.

In Singapore, the telecom regulator “admitted” to making a mistake and changed its royalty formula. The focus was not on trying to decide in some minute way where it went wrong and who should be crucified. The mistake was a collective one; it had a long history; admitting to it was not an end in itself; it was followed by a more rational, sensible policy. While the criminal trials focussed on corruption can proceed, the rest of our government should shift gears and move on with the best way to take us forward.

The TSC’S broad guiding principles should be:
1. Competition is good. We need many operators. We need to create an ecosystem where cartelisation is made very difficult, if not impossible.
2. Work towards service and pricing outcomes that maximise network and customer coverage.
3. Revenues, while important must be secondary to the coverage issue.
4. Other things being equal, a transparent auction process is the fairest and best way to allocate scarce resources of the commons. Not having an auction leads to discretionary rent-seeking on the part of the executive branch of the government and to the worst indulgences in corrupt crony capitalism on the part of corporations.
5. The auctions need not be concerned only with upfront payments. Large upfront payments favour strong incumbents. An ongoing revenue-sharing is preferable as it allows for multiple entrants. A reasonable upfront payment is, of course, needed if only to ensure that only serious players participate in the auction.
6. We know that even in the best of auctions, companies do collude. The process should ensure as much transparency and public vigilance as possible in order to minimise collusion.
7. The end-result should discourage artificial barriers for customers. For example, number portability should not be a negotiable item. It must be a prerequisite. Absolute transparency in pricing and billing should be another non-negotiable. Cunning bundling, opaque communications and frequent recourse to technical jargon almost invariably become smokescreens for anti-customer moves.
8. Mergers should not be viewed only through a ‘technical’ lens. Companies will present clever arguments in this area. Mergers must pass the market dominance tests and must always be viewed from a customer perspective, not from the perspective of operators’ bottomlines.
9. We must assume that with any revenue-sharing formula there will be the proverbial ‘accounting’ disputes. The companies will try to understate revenues; the taxman will try to reverse that. When the railways were regulated in British India, there were endless disputes between the government auditors and private sector railway companies as to what items should be capitalised and what should be expensed. My late father used to regale me with many humorous anecdotes in this regard. The more things change… We need to set up a speedy arbitration and adjudication process to deal with this set of problems, which are bound to come up.
10. Above all, the TSC must be guided by the principle of ‘closure’. Once issues are settled (as its name implies, this body should ‘settle’ matters!), there should be no reopening. Instead, there should be clarity and predictability that give solace to operators and customers. Of course, new issues may arise in the future and will need to be regulated by a TRAI that should shed the baggage of the past and emerge in a new improved, empowered avatar.

A transparent auction process is the fairest and best way to allocate scarce resources of the commons

The choice of the TSC members is not a trivial decision; it should be above reproach. Our government has so badly dealt with crucial people choices in recent times — be it ministers, secretaries of departments or even the Central Vigilance Commissioner — that we all would be right in being a trifle suspicious and cynical on this score. Rajendra Prasad, Jawaharlal Nehru and Sardar Vallabhbhai Patel were able to overlook long years of acrimonious political differences and choose BR Ambedkar to chair the drafting committee of our Constitution; C Rajagopalachari understood the importance of ‘nominating’ Father Jerome D’Souza to the Constituent Assembly as a crucial gesture to reassure minorities. We need the same spirit of non-partisan judgment in order to make a success of the TSC. Trying to score short-term political brownie points must not be the motivating factor.

Having a vibrant telecom sector is a patriotic requirement and has little to do with gains in party politics. It is incumbent on the government to reach out to the political opposition, to civil society, to telecom experts who are not lobbyists either for the executive branch of the government or for companies operating in this sector, to economists with expertise in constructing auction mechanisms, to judicial minds that are sober and well-informed and to vigilant consumer advocates. A well-appointed commission that represents the best face of India — a forward-looking face that believes in rule by predictable laws and not by whimsical individuals — that is what we must seek.

I CANNOT end this piece without a satirical aside. Perhaps the TSC should recommend that the TRAI should be moved out of Delhi! After all, independent regulators like the Reserve Bank of India, Securities and Exchange Board of India and Insurance Regulatory and Development Authority have demonstrated competence and rectitude and are all headquartered outside Delhi. It just could be that the Byzantine fogs of Delhi are more conducive to commission agents and fixers than other cities. Just a patriotic thought, even if the suggestion were to be dismissed as the ranting of an anti-Delhi conservative.

One of India’s foremost right-wing economic thinkers, Jaithirth Rao is founder and chairman of Value and Budget Housing Corporation, a company in the affordable housing space.
jerry@jerryrao.net

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