Revisiting Reforms: Looking back at the telecom sector’s regulatory journey

When I joined as chairman of the third telecom regulator in 2003, the sector had received its full dose of telecom reforms. Two reform acts had been passed, the regulator had started functioning, and orders and regulations had been issued. However, we had not been able to improve upon the “Hindu rate of growth” of around 3 per cent. The entire sector was tangled in litigation and almost all operators were incurring losses. No one was investing money into the sector.

Fortunately, Arun Shourie, with whom I had worked for two and a half years in the Ministry of Disinvestment, took over as telecom minister around the same time. He had a strong vision for the sector. We, at the Telecom Regulatory Authority of India (TRAI), also saw the huge need for reforms. Unlike other bureaucrats, I had formal training in reforms and privatisation through a one-year course at the University of Oxford, and other international courses in reforms sponsored by the Government of India. I also had previous experience in reforms in other sectors. Other members of TRAI also had similar experiences relevant to reforms.

The first National Telecom Policy (NTP) was issued in 1994 with the objective of bringing changes in ownership, service and regulation of telecom infrastructure. The policy introduced the concept of telecom for all, and its vision was to expand facilities to all the villages in India.

Private players started operations in 1995. But they could not connect with the existing network since there were no regulations for interconnections and termination of telephony, and TRAI had to be set up in 1997 under a court order. Its mandate was to reduce interference by the government in deciding tariffs and policymaking. The first tariff order was issued in 1998.

There were several problems with NTP 1994 and the TRAI Act, 1997. The NTP 1999 and the TRAI Amendment Act, 2000 rationalised things further by establishing job-focused institutions. TRAI’s adjudication and dispute settlement function was transferred to the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) for strengthening the regulatory framework. Any direction, order or decision of TRAI could be challenged by appealing in the TDSAT.

Despite these measures, the teledensity was apologetic. From 1998 to 2003, it increased from 1.94 per cent to 5.11 per cent, at a rate of 0.6 per cent per year, which was much below government targets. However, in comparison, the miserable pre-reform period growth rate was 0.04 per cent.

The post-2003 changes, which brought in unified access service licensing (UASL), led the sector to explode in terms of growth numbers. This was the courtesy of fall in tariffs due to increased competition in a level playing field and technology-agnostic licensing. The regulator’s decision of leaving tariffs to operators, after making many pro-growth regulations, also helped.

Reforms led to changing the sector, with a unified access licensing regime being approved by the government, and litigation being quickly settled through discussions with stakeholders and operators in 2003. All litigations were withdrawn by the operators. The Supreme Court also approved TRAI’s regulations. The growth in 2003–04 and 2004–05 was more than 2 per cent –higher than the 50 years’ total growth up to 1998. Later, the growth kept accelerating in a no-litigation environment at a rate no one had anticipated. The regulations were also not amended since this model was successful.

The UASL alone did not bring growth. There were many other distortions, which had to be managed. The first was the access deficit charge (ADC) of Rs 5.20 per minute on each call, of which a major portion was imposed on fixed lines by the regulator at the beginning of 2003. This would have meant a much higher tariff for fixed lines in order to subsidise them since they were being challenged by new technology and to help them survive during the initial years. This measure would have killed fixed lines.

The second and the third problems were the high carriage and termination charges. Since these elements of the telecom network were monopolies, we reduced these charges to the bones and allowed operators to fix call initiation charges on their own, since there was plenty of competition.

Reforms-led growth

TRAI laid a solid foundation for growth during 2003-06 by introducing competition in tariff offerings, reducing the government levy and creating an atmosphere of policy stability. The telecom reforms, which started in 2003, created a level playing field among operators. Consequently, private operators started investing more. The sector-wise capital employed for the years 2005–06 and 2010–11 is given in the accompanying table.

However, it was not an easy process because it required addressing the technical and economic aspects of the new regulatory regime, creating awareness and understanding among senior government decision-makers about the basis and impact of these changes, and also ensuring a lasting predictability of the new regime by active litigation up to the highest body, the Supreme Court, to address all the legal challenges during that period. Thus, the turnaround required acting on multiple issues and fronts, with clarity of understanding and vision. TRAI recommended a two-step process, under which the transition to a common licence could be successfully achieved.

China never believed that India could implement such reforms in a slow-moving democracy. (They invited me for a lecture at Beijing University, but the government having changed by then, I was not allowed to go and I sent one of my advisers instead. The Chinese then sent a multi-member team to the TRAI office to understand our regulations and kept joining our international classes too.) Interestingly, the rate of growth in India after the implementation of Part I reforms was three times that in China.

In terms of broadband growth, for India, it has been mostly mobile broadband. India has performed well in mobile telephony and broadband penetration through elaborate policy making. Broadband growth now determines the future of countries.

Challenges and disappointments

Convergence of services – broadband and TV – under the same regulator and massive centralisation through internet technologies are an issue. Moreover, companies headquartered overseas are providing services that the regulator is not able to understand. Mobile devices laden with apps are the new battlefield wherein companies are fighting to capture consumer data to provide curated products and services, which is also being used to train artificial intelligence (AI) platforms. It is a new military-industrial complex, and the US and China are leading in this. Indian regulators will now have to deal with this phenomenon.

In terms of disappointments, India could not develop core ICT technologies like search engine, social media apps, operating systems, etc.

Policy suggestions and the way forward

Technology platforms are converging and providing telephony and message services. The regulator will have to find a way to address issues such as global service providers located in foreign countries, global digital platforms, digital currencies, privacy, ethics, transparency and taxation. Above all, the regulator will have to find ways to strike a balance between market demand, the pace of innovation, and regulation.