Sanjeev Aga: Call drops on telecom regulation

The recent disagreement over spectrum pricing and usage between the Trai and the DoT highlights yet again the bizarre practice of having two policy institutions to govern the sector

The disagreement between two telecom institutions, Telecom Regulatory Authority of India (Trai) and the Department of Telecom (DoT) has puzzled many. The Trai recommendations of September 9, evidently boxed in by past policy capers, were yet well-reasoned, logically articulated, and widely welcomed. It is, therefore, strange that the DoT committee took exception to almost every recommendation. Of course, the Telecom Commission substantially amended the committee's views, before putting the ball back in Trai's court. But the issue of how two institutions can arrive at such divergent positions deserves examination. Is this about mindsets, about turf, about independence? Or is there a dangerous fault line embedded in the governance model?

The issues involved are simple. The spectrum reserve price is, as the name suggests, a mere reserve price. The counterpoint of guessing an end price and imposing that as a start price misses the point. Indeed, command and control is an addiction. Fortunately, the DoT secretary has clarified that all spectrum should be sold, which is heartening. If only India stopped squandering spectrum, the Indian economy will be bigger by Rs 1 lakh crore annually, on a conservative estimate, which is more than the entire fertiliser subsidy. What is crucial is that every last MHz of spectrum should be deployed, and deployed efficiently. All spectrum must be auctioned and whatever the resultant price, it will be not just fair, but also the best financial outcome for the exchequer. Any other understanding betrays economic myopia.

The Spectrum Usage Charge (SUC) is a product of the pre-2006 paradigm when licences were few but spectrum was on tap. In 2007, this SUC became a beloved toy of the ruling dispensation. By 2013, it had become a joke. For an economic resource such as spectrum, Trai could well have advocated a specific charge per MHz, but it has persevered with the revenue-share mechanism, suggesting only a common flat rate of 3 per cent. This much is a no-brainer. If the Telecom Commission desires precise revenue neutrality, then the 3 per cent can well be made 3.5 per cent without sacrificing the principle. Another suggestion counter to the Trai recommendations was to reserve spectrum in the 800 MHz band for CDMA growth. Worldwide, as in India, CDMA is in terminal decline and allocated spectrum already exceeds voice traffic needs. Reserving spectrum for CDMA growth is akin to a zoo keeping a cell reserved in perpetuity in the hope that a dodo will appear.

But let us even assume this Trai exercise eventually ends well. Would that address sector issues? Unfortunately, no. Consider policies that allow intra-circle roaming before an auction, and disallow it afterwards. Or those that confer technology-neutrality in 1999 and withdraw it in 2012 in the name of unliberalised-spectrum. For the jargon-challenged reader, spectrum liberalisation and technology neutrality mean the same thing (the Danish Business Authority website offers a clear explanation of this). Such ad-hocisms abound because policies are not supported by robust policy institutions. The better type of investors watch policy, but they derive confidence only from the quality of institutions behind the policy.

Planning Commission member Arun Maira worries that since we are not fixing institutions, India is falling apart. A complex, high growth, trillion-dollar economy, with money power sloshing around, has outgrown the governance model of the 1950s. Among the handful of quality policy institutions we have is the Reserve Bank of India, and that is a product of the Raj. The notion that ministers and ministry departments should run sectors such as hydrocarbons, aviation, telecom, power, or railways is anachronistic. The DoT has capable Indian Telecom Service officers who ran fixed line operations in Bharatiya Sanchar Nigam Ltd's earlier avatar. A quirk of fate finds them designing policy for mobile telephony of tomorrow for which they have been provided neither exposure nor training. With no symmetry between authority and consequence, between work and appreciation, self-respecting people must resent being reduced to their present pass. When spewing out penalty notices becomes a defence mechanism, you sense that these people may be present physically but they have seceded emotionally! What is true of telecom is equally true of several other sectors. The old is dying and the new cannot be born!

Having two policy institutions for telecom, DoT and Trai, was always a crazy idea, an outcome of confused intention and timid disposition. Like in every advanced international jurisdiction, telecom policy formulation should have been tasked to the regulator from its inception. Now, better late than never! But for this Trai will have to step up its game. Amending the Trai Act is a mere first step. The regulator would be tested on its sector knowledge, in widening the talent pool to attract the best, in the quality of its output, in the confidence inspired in investors, in the moral authority exerted, and in the thought leadership provided to India and to the world.

India is at a juncture where the absence of quality governance institutions is strangling growth. This has been the single biggest cause of the economic downturn. Second-generation reforms are not about mindlessly repeating what was done 20 years ago. They require dismantling mental blocks and building quality governance institutions for at least half-a-dozen sectors, of which telecom is one. This fond wish must now await any new government. Meanwhile, the Telecom Commission and the Empowered Group of Ministers should rally in support of the Trai recommendations.

The writer is a former corporate CEO