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Changing Times: TRAI aligns itself with new sector dynamics

April 05, 2016
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The Telecom Regulatory Authority of India (TRAI) has played a significant role in shaping the Indian telecom sector. Effective functioning of the authority has created a supportive regulatory environment in the sector, which has resulted in exponential subscriber growth, the deployment of telecom networks across the country, and overall customer benefit in terms of choice of services, affordable tariff and service quality. Over the years, as the sector has matured and become almost self-regulating with most of the issues in forbearance, TRAI has largely been involved in regulating the sector from the point of view of industry growth and keeping a tab on disputes.

However, in recent years, the sector has undergone a fundamental change, with the emergence of new growth drivers, entry of new players in the ecosystem, introduction of new technologies and surfacing of new challenges. In light of the changing industry dynamics, the authority has been compelled to rework its role to become a more relevant telecom regulator. Changing times have called for consultations, which have never been done before, several of which are even outside TRAI’s comfort zone; recommendations that are more critical, topical and urgent; and regulations that are more stringent and rigorous in nature.

The sector dynamics have undergone a sea change since 2012, when the Supreme Court cancelled 122 telecom licences and TRAI was tasked with the responsibility of designing a roadmap for auctioning the revoked spectrum. It was also during this time that data services started gaining traction, and operators started facing a spectrum crunch. The several rounds of spectrum auctions that followed the licence cancellations have taken operator rivalry in the Indian market to a new level, and TRAI’s role in ensuring proper market functioning has become crucial.

Safeguarding consumer interest has always been TRAI’s paramount responsibility, and this function is now more relevant than ever with the higher adoption of data services. TRAI’s recent strict stance in prohibiting the differential pricing of data services by operators has been widely applauded by industry stakeholders and is seen as a key move that upholds net neutrality in the country. Its recent order to operators to compensate consumers for call drops is also expected to improve the deteriorating service quality standards in the country.

TRAI has done a commendable job of working independently of the influence of big operators. Indeed, telecom incumbents have criticised the regulator for recommending exorbitant spectrum prices, the ban on differential pricing and forced compensation against call drops. However, it is the control that policymakers have on TRAI’s decisions that prevents the authority from working with full autonomy. There are several instances of TRAI’s recommendations being overlooked or kept pending by the Department of Telecommunications (DoT) when formulating policies, although in recent years, TRAI has become more rigid in its approach when dealing with re-references sent back by DoT.

The changes taking place in the telecom sector also call for a re-working of the roles and responsibilities of the regulatory body, making its functioning more independent of policy decisions than before. Its role as a mere adviser to DoT needs to be re-examined as the country’s telecom ecosystem matures. The body can definitely carry greater influence with additional power and more freedom. That said, with data becoming central to sector growth, TRAI’s expertise in formulating regulations in areas such as content, net neutrality and over-the-top (OTT) services remains to be proven.

The following is a look at TRAI’s evolving role in the face of India’s changing telecom sector.

An evolving role

The past two years have been very progressive from a regulatory standpoint. The regulator’s role in protecting the openness of the internet as well as in addressing the worsening call drop situation is commendable. Also, there have been several forward-looking consultations, recommendations and orders that are likely to set a progressive roadmap for the industry.

•  Ban on differential pricing to encourage net neutrality: In a milestone move that put the ongoing net neutrality debate in the country to rest, TRAI issued the Prohibition of Discriminatory Tariffs for Data Services Regulations, 2016. The regulations disallow operators and service providers from charging differential tariffs based on the websites/ applications/platforms being accessed on the internet.

The decision came as a major blow to Facebook’s Free Basics programme, which had received severe criticism from supporters of net neutrality in India as it allowed free access to select websites. TRAI, however, made it clear that it is not in favour of telecom operators playing the role of internet gatekeepers and defining a user’s internet experience in a way that is favourable to them.

•   Addressing call drops to restore network quality: TRAI formulated the Quality of Service [QoS] Standards for Basic Telephone Service (Wireline) and Cellular Mobile Telephone Service in July 2000. These have been periodically revised and benchmarks have been laid down for call drops and circuit-switched voice drops. The latest revision to the Telecom Consumers Protection (Ninth Amendment) Regulations stipulates the imposition of a financial disincentive on operators failing to meet QoS benchmarks.

This follows a call drop audit in several cities between June and September 2015, post which TRAI issued regulations ordering operators to pay a compensation of Re 1 to users for each call drop, subject to a maximum of three dropped calls per day. It is estimated that the regulations may result in operators paying out an approximate Rs 1.5 billion per day. While this is a key step in ensuring QoS for consumers, TRAI has not provided any rationale for the imposition of the penalty, particularly on how it derived the compensation amount per dropped call.

•   Private sector participation in the BharatNet project: Recently, TRAI recommended a public-private partnership (PPP) model and a bigger role for the private sector to expedite the implementation of the BharatNet project, which has repeatedly missed its delivery timelines over the past three years, resulting in a more than threefold cost escalation.

TRAI’s recommendations are in line with a two-year consultation paper titled, “Delivering Broadband Quickly”, in which the regulator questioned DoT’s decision to involve only state-owned telecom companies in executing the national broadband network.

•   Introducing mobile virtual network operators (MVNOs): The regulator has given recommendations on introducing virtual network operators in the sector. Based on these, the policy for operators who provide telecom services without owning spectrum or infrastructure is currently being formulated.

•    Regulating OTT players: The government is currently awaiting TRAI’s recommendations on whether to regulate internet-based calls made through OTT apps. TRAI had issued a consultation paper in March 2015 which included regulatory treatment of VoIP services.

•   Sector consolidation through spectrum sharing and trading: The government has recently approved the spectrum sharing and trading guidelines recommended by TRAI. This will lead to consolidation in the sector, which would, in turn, require a strong regulator to control the market.

Regulatory independence

While in the past few years TRAI has taken significant stands on issues of critical importance to the telecom industry, the support from DoT (or the lack of it) has been debatable. For a regulator to be independent in the true sense, it needs to have functional and financial independence from the government. In the case of TRAI, after the initial few years of its establishment, there has been a weakening in its functional independence and the government has continued to exercise undue control over it.

DoT, which reluctantly gave up its regulatory functions to TRAI in 1997, has not ceded much ground to the regulator even after two decades of its establishment. TRAI’s powers over several key functions such as licensing and spectrum management continue to be chiefly recommendatory. Over the past few years, the government has not accepted, or has simply kept pending, several of TRAI’s recommendations on mobile virtual networks, spectrum sharing and trading, and auction design and prices. For instance, the regulator had sent DoT its recommendations on the Working Guidelines for Spectrum Trading in January 2014, followed by those on spectrum sharing in July 2014. It was only in April 2015, almost a year later, that DoT sought clarifications/reconsideration on various issues in both the recommendations. These policies were eventually formulated only in end-2015.

Further, the pricing and quantum of spectrum to be put on sale have been a bone of contention between DoT and TRAI in recent times. In January 2015, DoT and TRAI were at loggerheads over the quantum of spectrum to be auctioned in the 2100 MHz band, with the latter insisting that the entire chunk of 15 MHz be put on sale. DoT, however, was in favour of putting only 5 MHz on the block in a bid to maximise revenues. Differences had also cropped up between the two over the reserve price. TRAI had recommended a pan-Indian base price of Rs 27.2 billion per MHz of spectrum in the 2100 MHz band. DoT, on the other hand, was not in favour of fixing the price below the final bid amount realised in 2010, when operators had bid Rs 33.4 billion per MHz. Ultimately, the reserve price approved for spectrum in the 2100 MHz band stood at Rs 37.05 billion per MHz.

Before these auctions, TRAI had also recommended that 15 MHz of spectrum in the 2100 MHz band should be acquired from the Ministry of Defence in exchange for a similar amount of spectrum in the 1900 MHz band. However, the Telecom Commission rejected TRAI’s recommendations, stating that it would not be possible to get spectrum from the defence establishment.

Need for a content regulator

TRAI has been largely focused on networks, infrastructure and services, and thus it has limited experience in content management and regulation. This brings the role of TRAI in addressing convergence-led challenges under the scanner. This, in turn, raises the question for policymakers as to whether the country needs a separate agency for content regulation or if the function should stay with TRAI.

Countries like Malaysia and South Korea have not been successful in their attempts to combine content and carriage regulation. While TRAI’s handling of the net neutrality issue has been appreciated, its call on the pending OTT issue, and how well it internalises other data-led challenges will be instrumental in taking any key decision on the subject. A possible option is to put the Ministry of Information and Broadcasting in charge of content regulation.

The way forward

The Indian telecom sector has embarked on its journey to become a mature and developed market. As convergence becomes the name of the game, the roles and responsibilities of all stakeholders in the telecom ecosystem, including TRAI, will have to be re-examined and redefined to better align them with the data-led sector. As new entities such as MVNOs and OTT players enter the Indian telecom ecosystem, the establishment of forward-looking and effective regulations will become critical.

While the jury is still out on whether or not the industry needs a separate regulator for managing content, there exists strong support for enhancing TRAI’s autonomy to make it fully independent from government influence and thereby strengthen and expand its current role of a mere adviser.

A clear bifurcation between policy and regulation, which has been missing in the Indian telecom sector, is important to ensure that the regulator’s domain is not encroached upon by the government in the name of achieving policy objectives. In the long run, strengthening the regulator’s authority and reducing the institutional overlap would be key to the success of the telecom sector.

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