Scope for Improvement: Review of the policy and regulatory environment

India’s aspiration to become a $5 trillion economy by 2027 is strongly tied to the growth of its digital economy, which is expected to contribute $1 trillion by that time. Mobile and internet penetration, digitalisation in various sectors and ICT-related services are the major drivers of this growth.

As of September 2024, India had approximately 954.4 million active internet subscribers, which marks a substantial increase over that in previous years, across both urban and rural areas. Of this total, 556.05 million were urban, while 398.35 million were rural internet users. This reflects the growing reach of internet services in rural areas, which now account for about 41.7 per cent of total internet users.

The telecom sector’s growth in India over the past 25 years has outpaced that of other infrastructure sectors. The rapid evolution of technology, with its attendant benefit of improved price-to-performance ratio, has been a factor in the relative speeds of proliferation.

The increasing value of mobile teledensity, which showcases the sector’s growth story, has two issues. The first is that  although the disparity in rural and urban teledensities has decreased significantly over the past nearly 10 years, it is still quite high and continues to be an area of concern. Second, we are way behind in our global rankings. For example, as of October 2024, India has a mobile teledensity of 84.49 per cent, while the comparative values for China and Sri Lanka are 121.45 per cent and 141.29 per cent respectively. Studies have shown that the impact of mobile and internet/broadband on the economy is greater than that of the basic telecom network. On another dimension, our mobile broadband speeds, an indicator of internet experience and a determinant of adoption, are relatively low. As of December 2024, China has a mobile broadband download speed of 147 Mbps against India’s 103 Mbps, largely due to limited 5G deployments.

Despite the relatively good performance of the Indian telecom sector vis-à-vis other infrastructure sectors, there is significant scope for improving the policy and regulatory environment. Management literature rightly recognises the relationship of strategy and structure and the need for alignment between the two for achieving strategic objectives. We posit that the institutional design of the Indian policy and regulatory entities leaves substantial scope for better alignment. The question that policymakers need to address is whether the scope of these organisations is adequate to facilitate sector growth.

We illustrate this in the context of the Telecom Regulatory Authority of India (TRAI) and the Department of Telecommunications (DoT). In the case of TRAI, we analyse this at two levels – the scope of TRAI vis-à-vis DoT and the organisational structure of TRAI and its effect on its functioning and sector growth.

The setting up of TRAI in 1997 after the introduction of private sector participation in 1992 and its limited scope created several legal issues, hampering further private participation in the initial years.

Private participation and the creation of TRAI changed the sector’s structure, unbundling the policy, regulatory and operational aspects of the sector from DoT. However, since Bharat Sanchar Nigam Limited (BSNL), a wholly government-owned service provider, came into being, the policy and operational aspects of DoT are not completely unbundled and have created uneven competition between BSNL and private operators. The Telecom Disputes Settlement and Appellate Tribunal (TDSAT) was set up in 2000, following an amendment to the TRAI Act, 1997. Having the need to separate the adjudicatory powers of TDSAT, so soon after TRAI’s creation, shows a lack of foresight.

TRAI is headed by a chair and has two full-time members and two part-time members. Often, there have been delays in the appointment of chairs and members, both in TRAI and TDSAT. This has reduced its effectiveness. Officials from DoT are often appointed in TRAI and TDSAT and vice versa. This has created situations where decisions taken by officers, while serving in one of the organisations, have been challenged by the other organisation, under the same officer.

For a regulatory agency, TRAI’s scope has not been adequate for it to take a sector-wide perspective. For example, the scope of TRAI does not include management of spectrum and licensing, which remain with DoT. Given that spectrum is the key resource for wireless growth, leaving it out of TRAI’s purview limits its effectiveness as a sector regulator. In contrast, several other regulatory agencies, including the US’s Federal Communications Commission (FCC)  and the UK’s Office of Communications, manage spectrum. Another example is that initially, TRAI did not have the mandate to govern cable networks, which was given to it after a government notification in 2004. The decision to have TRAI regulate cable networks was ad hoc, albeit recognising the integrated nature of telecommunications services.

Another area that is usually the remit of telecom regulatory agencies is the administration of the rural telecommunications service fund. DoT administers the Universal Service Obligation Fund through the USO Fund administrator, without any regulatory oversight.

On several important regulatory aspects, TRAI has only recommendatory powers and these are subject to review by DoT. On many occasions, reviews by DoT have lengthened the regulatory processes. As it is, the TRAI recommendation process is often long. Despite a well-designed process of seeking consultation from the public, holding open-house discussions across different regions, and seeking comments from a variety of stakeholders, TRAI’s drafting of the consultation papers leaves a lot to be desired in terms of its sharpness and focus.

Further, there is inadequate formal ongoing support for TRAI for its operations. In contrast, the FCC in the US draws on the expertise of advisory committees that have been set up by a federal act to advise various federal departments and agencies on broad-ranging issues. Examples include the Communications Equity and Diversity Council, the Consumer Advisory Committee, and the Disability Advisory Committee. Besides these, there are several formal advisory groups, task forces, etc., such as the Broadband Data Task Force, Connect2Health FCC Task Force, Task Force to Prevent Digital Discrimination, Federal-State Joint Conference on Advanced Services and Intergovernmental Advisory Committee. These indicate a whole-of-government approach that aims to integrate across sectors and policies, and establishes greater credibility for the FCC.

In contrast, TRAI’s organisational structure is limited. A formal broader oversight from across a variety of groups/departments and interlinkages as exemplified in the FCC case would help TRAI to tap into external expertise and facilitate various cross-departmental aspects such as refarming of spectrum from various government agencies. Access to various advisory committees and task forces gives the FCC a dynamic structure as task forces may be set up for specific issues of concern with a time-bound mandate.

Besides a review of TRAI’s functioning, it is also important to recognise that the policymaking and implementation by

DoT need to be far more effective than it is now. Some examples that are relevant are given below.

Delays in making spectrum available for commercial use: Despite India having very low amounts of both licensed and unlicensed spectrum for commercial use in relation to several economically advanced countries, there seems to be an inertia to make more bands available. Since spectrum is a natural resource, of which every country has the same amount, this puts India at a competitive disadvantage.

The AGR issue: The AGR issue needed to be addressed in its infancy and should not have been allowed to burgeon and acquire a life of its own. Several years of DoT, TRAI, TDSAT, Supreme Court, various government departments, and private operators’ legal processes have left a quagmire that has been a primary cause of the almost duopoly in the sector. Without going into the merits of any agency’s perspective, this is a classic case where some enlightened decision-making early in the game on DoT’s side would have helped to have a healthier telecom sector today.

Delays in rural telecom roll-out: DoT as the USO Fund administrator is fully responsible for delays and short comings in the programme. This is despite having several examples of successful rural roll-outs such as under the Pradhan Mantri Gram Sadak Yojana. There are several useful and relevant lessons on planning, organising, implementation and private sector participation that can be learnt from an old-world sector for a technologically advanced sector such as telecom.