Who Regulates the Regulator: TRAI and the Telecom Mess

TRAI’s tariff proposals were a time bomb waiting to explode. It speaks volumes of the incompetence or the complicity of the Government that it intervened to hold the increase of tariffs in abeyance only when there was a furore in Parliament cutting across party lines. We had argued long back in these columns that the Government should issue a policy directive through the Parliament to TRAI for working out the basis of tariff revisions. Policymaking can not be done by a body such as TRAI which is not accountable, but should firmly be within the purview of the Parliament. Unfortunately, TRAI, which is completely under the sway of private operators and international agencies, has done immense harm to the emerging regulatory framework in the country. By its insistence on making huge tariff increases without regard for either the consumers or the Standing Committee of Parliament, it has opened the way for Department of Telecom (DoT) to regain its powers over tariffs.

The TRAI’s proposals right from the beginning have been to push up local call rates and rentals while reducing long distance and international call charges. While there may be a case for lowering long distance call rates, the need to raise local call charges are inexplicable unless we take into account what the private operators are demanding. Delhi Science Forum had in its petition against the Basic Services Tender had clearly brought out that the license fees that the private operators are promising to pay will lead to steep increase in rentals and local call charges. Today, while the private operators are yet to roll out their network or cough up even 20% of the license fees, the local call rates are set to jump by 30 to 100 %. So much so for competition lowering prices and providing better services.

The BJP Government has been burning midnight oil trying to work out schemes to help the defaulting private operators. The Prime Minister’s office has suggested that tender conditions be modified retrospectively so that the private operators pay a portion of the revenue and not fixed license fees. Amongst the private operators are the Mittals, already in the news, curtsy Mohan Guruswamy, who has charged the PMO of interceding on their behalf. The TRAI’s tariff proposals were therefore quite a happy occurrence for the BJP Government.

TRAI has contended that its proposals will provide more competitive telecom pricing. The competitive rates are all from the point of view of the service providers and not the subscribers – either current or potential. From the service providers short-term point of view, higher call charges makes them more competitive. The TRAI has hardly bothered to consult the consumers – in its consultations, only one consumer organisation was listed while the private service providers have been granted extensive private consultations.

TRAI claims that its rate increase for the local calls is of the order of 33%. However, if we take the totality of proposals – increase in rentals and call rates coupled with reduction of free calls and the pulse duration from 5 to 3 minutes – the net cash outflow from the subscribers pocket can be more than twice. It can be easily shown that a subscriber who would have got a bill for Rs.780 for two months would now get a bill in excess of Rs.1,600 if he or she spends the same amount of time on the phone. His or her each call of 5 minutes duration would earlier have been metered as one call, but will now count as two. It is not surprising that DoT, was not unhappy with these increases, its only objection being the lowering of STD rates. TRAI was not satisfied by jacking up the tariffs to twice their current levels; it had stated that the tariffs would have to rise further over the next three years. If TRAI’s current figures of 33% increase tariffs translates to a 100% increase in bills, the 70-75% increases that TRAI was set to make over the next three years would probably have led to bills of the subscribers quadrupling.

TRAI has also proposed that STD/ISD charges would have been brought down by 45 to 50% over the next three years, the first instalment being a 24% reduction. DoT had opposed this measure, claiming that STD/ISD income helps in cross-subsidising ecumenically underdeveloped and rural areas.

TRAI has claimed that it has held extensive consultations with all the stake holders and there was a consensus on the need to re-balance the tariffs. This so-called consensus of course does not include either the consumer groups or the Standing Committee of the Parliament on Communications who had cautioned TRAI on a rate increase of this magnitude. And this has been the key problem with the TRAI right from the beginning. Its sees its task of primarily protecting the private operators; the consumers are of little consequence to TRAI. That is why the consultations have been concentrated mainly with the private operators with the only DoT being given hearing apart from the private operators.

TRAI’s argument for the steep hike in cost of rentals is that capital cost per line should be recovered from rentals. Thus, in view of TRAI, the capital cost of the local network should be recovered through rentals while the call charges should be based on operating costs alone. As we had pointed out earlier, we are not aware of any theory of utility pricing in which costs are calculated in this fashion. On the contrary, the practice of the last hundred years, not only for Government monopolies, but also of regulated private monopolies such as the Bell system in US, the access charge — rentals, installation costs, etc.– have been kept very low while the call charges have been used to recover capital and operating costs. In no other utility, can the capital cost be recovered through just providing a connection as is being suggested by TRAI.

It has also been detailed earlier in these columns why the high end user has to bear the major share of the capital cost of the network as the major capital costs of the network is to accommodate the peak load of the system. This can not be apportioned as an average cost on every user. In other words, if as a subscriber I make virtually no calls, then I do not cause any peak load in the system. Therefore my access cost to the network is the cost of connection of the instrument from the nearest junction box to my house, or at best, from the exchange to my house. That the capital cost of capacity expansion should be borne equally by the lowest end user to the highest as is being proposed by TRAI, is an attempt to get the low-end user to subsidise the high-end business traffic and the rich. In general, even in countries with much higher income levels, the cost of access is generally taken as a small fraction of the capital costs of the local network and the rest recovered through call charges, both local and long distance.

The low telephone densities in the country is a matter of great concern and we should have as our primary objective the expansion of the telecom network, particularly the expansion of the rural telecom network. We are already lagging well behind countries such as Malaysia, Brazil, etc., who have telephone densities of about 10 per thousand against our teledensity of only 1.7 per 100 population. The low teledensities are due to low per capita income in the country and the access charges being high as a proportion of the per capita income. Obviously, if we are to increase our teledensity, we need to lower the access charge to basic telephone services as a proportion of the per capita income. That is why the rentals and basic minimum charges were sought to be lowered (at constant prices) in the past so that the country could increase its telephone density as it was realised that telecom infrastructure is a pre-requisite for economic growth. The proposals put forward by TRAI are retrogressive as they seek to drastically hike up the access charges and make it much more difficult for the lower end users to continue on the network.

The key question here is that issues such as cross-subsidies, access charges, etc., are matters of public policy and impinge on much larger socio-economic issues. The most important issue in a regulatory framework is who decides the policy in the area – the government, the parliament or the independent regulator. While a number of people have argued that as the government is more prone to populism and nepotism, the independent regulator should have total authority in its domain. In this, what is forgotten is how then do we make the regulator accountable? What is the protection that we have against a regulatory capture where the more organised and well oiled private operators do not take over the regulator.

The policy issue has to be looked on from the fundamental premise that only the Parliament can make policy. Any regulator has to function within the framework of a policy laid down by the Parliament. TRAI’s contention that it is free to evolve policy under the TRAI Act points either to a fatal flow in the TRAI Act or a wrong understanding of the Act. The Parliament, and not the government, must assert its sovereignty over decision making by suitably amending the Act and provide the necessary policy guidelines to TRAI. The current amendment that the government is considering, however, is to assert the supremacy of the government over TRAI, therefore dismantling the entire regulatory framework. The Parliament also needs to give voice to the consumers as is done on the regulatory framework elsewhere by making suitable provisions. The reasons for having a regulator comes from the need to protect the consumer from the monopoly operators and providing fair competition between DoT and the new incumbents. As DoT itself is an operator, it can not also play referee in this game. Once the supremacy of DoT over TRAI is asserted, the reason d’être for a regulator disappears.

There have been other issues that have come up with the way that TRAI has functioned. We had pointed out that TRAI has taken funding from World Bank and CIDA, a course that no regulatory agency should follow. The recent CAG indictment of TRAI on its expenditure during various foreign “study” tours, is another instance of the faulty judgement of TRAI. It is time we confront the question who regulates the regulator? Otherwise, the entire regulatory framework is unlikely to deliver us any meaningful results.