Devangshu Datta: Trai's latest challenge

BEATING THE STREET

The Telecom Regulatory Authority of India (TRAI) is frequently at the centre of controversy. This is inevitable. It regulates large, high-growth markets and balances tangled conflicts of interest.

Where TRAI has walked tightropes successfully and set sensible parameters, the outcomes have been good.

The journey in cellular services from the high-tariff, bi-directional charge, fixed license fee, single-technology, limited competition regime of 1996 to the current caller-pays, multi-operator, multi-technology, revenue-sharing system is a good example.

As conditions got better, volumes surged. By early 2006, India should have over 100 million mobile subscribers making it the third-largest market in the world and perhaps the cheapest.

What's more, the service-providers ought to be profitable. Similarly in long-distance, even limited freedom has led to drops in tariffs and surges in volumes.

There are areas where the structure is not ideal and the lack of growth in those segments reflects that. Internet penetration growth has been sluggish. While overall telephone penetration has increased to over 50 million, Internet subscription remains stuck at around 2 million.

The latest TRAI recommendations on Internet and broadband are designed to address this. In a nutshell, Trai has suggested network-resource sharing: broadband providers should be allowed to use existing networks of wireline operators such as MTNL or BSNL.

Trai has also suggested huge duty cuts on equipment and tax-holidays to ISPs. At the same time, it wants tariffs pulled down 75 per cent to make broadband affordable. (The benchmark recommendation is 256 kbps rental at Rs 400/month versus current charges of Rs 1600/month).

If the recommendations are accepted, they would transform the market. BSNL is on the verge of launching a national broadband blitz as is Reliance. Other basic operators like Tata and Bharti would get into the act.

Many other players, including pure content providers, would enter if they could leapfrog the huge costs of network rollouts by leasing access to existing networks. Ensuring a competitive broadband market structure would not be a problem if last-mile access is guaranteed.

The key to usage-explosion is probably lower costs in a price-sensitive market. At Rs 400 per month versus Rs 250 (the rental for a basic phone), broadband becomes affordable.

In fact, an always-on broadband connection works out cheaper for a regular Net user, as well as offering the conveniences of simultaneous voice and data and the possible attraction of video content.

Inevitably, long-distance rates would also drop further because Voice over Internet would be come into play once a large user-base existed. (Yes, there are legal barriers but it's technically easy to rig VoIP and impossible to police).

Lower communication costs and higher network effects would make virtual private networks and other sophisticated spinoffs more popular. The real gains to business are difficult to compute.

Cheap broadband access makes it much easier to manage supply-chains and implement Oracle/SAP and other enterprise-wide IT solutions. Also imagine a situation where a cheque drawn on say, a Mumbai branch of HDFC Bank could cash on the same day in an SBI branch at Itanagar.

Will the recommendations be accepted however? Incumbent network operators may lobby hard to prevent them coming into force. This is where Trai will have to walk yet another tightrope.