RRN Prasad: Dial in more competition

As in most other parts of the world, when India opened up the telecom sector to competition in 1994, it too adopted an evolutionary approach and opted for limited competition, that is, allowing only two players in each of the four metro circles, which were opened for private players. One of the landmark developments in moving from limited to open competition was the publication of a Consultative Document, "Competition & Choice: Telecom Policy for the 1990s," by the British government. In essence, the white paper supported a market-driven approach, a process which had started some 10 years earlier in the UK, and represented a complete reversal of what had been the established pattern of telecommunication policy globally. The new policy implicitly recognised that technological developments were limiting the scope of telecommunication regulation, and in practice there was little that the government either could or should do, other than to act as a facilitator of open competition in the market.

In the light of these global developments, the Indian policymakers also carried out a review of the National Telecom Policy 1994 (NTP 1994), and in 1999, NTP 1999 was brought into force. Based on the new policy framework, the TRAI began recommending the entry of more cellular operators progressively since early 2000, the only limiting factor being the availability of spectrum. Thanks to these recommendations, the market has evolved from a duopoly to 'tight oligopoly'.

However, it is still not fully competitive. There are a number of adverse effects of a tight oligopoly. One of the most important is that the service will not be cost-based, and that the profit levels will be higher than under conditions of full or effective competition. Therefore, the third generation reforms should take the industry forward towards full competition.

Another major policy issue relates to the procedure adopted by the government for giving frequency spectrum to the existing licensees. This method, called the 'administrative procedure,' is based on assigning frequency on a first-come-first-served basis. It does not follow the market-driven approach which is based on a transparent bidding process.

Since the early 1990s, a large number of countries have given up the old administrative procedure of giving frequency to operators based on nominal charges mainly for the frequency management function. The FCC in the US has, since 1994, auctioned frequency bands in an open and transparent bidding process. In Europe, a large number of European countries such as the UK, Germany and Netherlands have chosen the auction method to find out the true market value of this scarce national resource.

OFCOM, the converged regulator for the telecom and broadcasting industry in the UK, has recently carried out a strategic review of spectrum management and has also developed a spectrum vision. According to this vision statement, spectrum should be free of technology and usage constraints as far as possible. 3G spectrum policymakers in India will do well to go through the vision statement and other documents which are in the public domain, while formulating our country's 3G spectrum policy.

The evolution of competition in developed countries has created an industry structure which has no entry barriers and no limit on the number of service providers. Globally, the telecom industry structure is based on an open market, technology and service neutrality, alignment with general competition law, industry self-regulation and broad consumer protection. The third generation reforms initiated by a New Telecom Policy (NTP 2007) should be based on these regulatory features.

(The author is a former Member, TRAI/Telecom Commission)