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Telecom Face Off: TRAI and Telecom Commission lock horns

April 28, 2017
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By Devangshu Datta

The Telecom Regulatory Authority of India (TRAI), the sector regulator, and the Telecom Commission of India, which is an arm of the Department of Telecommunications (DoT), have had a well-publicised difference of opinion over the past few months. This has centred on the tariff schemes, or rather the discounts and freebies, offered by new operator Reliance Jio Infocomm Limited (RJIL).

In February, the Telecom Commission, which was chaired by J.S. Deepak, then the telecom secretary, wrote to TRAI. The commission pointed out that there had been a dip in the total revenue of telecom service providers in the October-December 2016 quarter. This had resulted in a concomitant fall in the licence fees and spectrum usage charges paid by the service providers to the government.

Licence fee collections have fallen from Rs 39.75 billion in the first quarter (April-June 2016) to Rs 35.84 billion in the second quarter to Rs 31.86 billion in the third quarter. The Telecom Commission expects revenue on this count to see a further decline of 8-10 per cent in the fourth quarter. The annual spectrum usage charge revenues are also likely to see a similar decline.

The Telecom Commission suggested that the extension of the free introductory offer by RJIL to an extra three months was a key reason for the continued revenue loss. In its letter, the Telecom Commission requested TRAI to restrict promotional offers to the mandated 90 days, referring to RJIL’s free offer, without naming the company.

RJIL made its introductory launch offer on September 5, 2016, offering free voice and data services for a period ending December 31, 2016. The offer was subsequently extended for another three months, ending March 31, 2017. TRAI’s regulations of 2002 restrict promotional offers to 90 days. There is also a 2008 order, under which all telecom service providers are required to state the eligibility criteria for such offers and the duration for which these offers are valid. RJIL’s extension of the offer may have violated that code according to other telecom operators.

Indeed, the telecom industry has lost about 20 per cent of its revenue since RJIL’s launch, according to estimates by India Ratings & Research. The ratings agency has revised the sectoral outlook for telecom in 2017-18 to “negative”.

In response to the Telecom Commission’s letter, TRAI contended that many other factors affect the sector’s commercial health. “The authority completely disagrees with the commission that it has not implemented its directions on promotional offers either in letter or in spirit. The commission may note that while examining free promotional offers, the authority had also sought formal legal opinion from the Attorney General of India,” TRAI wrote. TRAI’s contention is that the successive free offers in question complied with the law, based on that opinion from the Attorney General.

There was also a proposal from RJIL to offer highly discounted services for a further period of three months under the “Summer Surprise” plan. This has, however, been stopped by TRAI as “it does not fit with the regulatory framework”. RJIL has accordingly withdrawn the Summer Surprise plan and announced a different “Dhan Dhana Dhan” plan.

It would be entering controversial territory to see which interpretations of the regulations are more correct in terms of the letter of the law. In fact, the matter is subjudice, with other cellular operators having moved the  Telecom Disputes Settlement and Appellate Tribunal, arguing that RJIL’s promotional schemes have affected the profitability of telecom companies. Accusations have also been made that RJIL is indulging in predatory pricing.

However, the disagreement has long-term ramifications that go much beyond legal fine print. There is a much broader context, which should be borne in mind by policymakers and judges. That is the economic impact of policy and regulations on a key sector. And there is the even broader question of the role of an independent regulator and how much say such a regulator should have in terms of policy formulation.

First, telecom is a vitally important sector. Vast investments are committed within the sector itself and it generates huge revenues. In addition, the sector has large externalities due to its network effects. The entire internet, e-commerce, banking and broadcasting infrastructure rests on top of the telecom framework. The health of the telecom sector, therefore, affects growth across the entire economy. These considerations have to be borne in mind in the policy and legal decisions being taken.

TRAI is an independent regulator while the Telecom Commission is one of the highest sectoral decision-making bodies within the government. Independent regulatory agencies (IRAs) can become key economic and policy-making actors with controlling powers such as rule-making, monitoring and control, adjudication and sanctioning. It is important to define the powers and responsibilities of such IRAs very carefully and to structure IRAs in such a fashion as to avoid the regulator being captured by vested interests.

In highly specialised areas such as telecom and power, the IRA may be a key consultant, helping to formulate policy and legislation. In developed countries, IRAs are often called in to testify in front of parliamentary bodies when major legislative changes are on the cards. At the same time, a government arm like the Telecom Commission wields its own powers and the two bodies have different aims. This leads to a conflict of interests and to disputes such as the current one.

An instance of conflict of interest is outlined in this case itself. It is part of the Telecom Commission’s task to try and maximise revenues from the sector and this is the reason why it is displeased about RJIL’s free offers. On the other hand, it is TRAI’s responsibility to look after consumer interests and ensure that telecom services are affordably priced.

TRAI is arguing, for instance, that the lower tariffs triggered by RJIL would lead to improved teledensity in rural areas. Part of its brief as the regulator is to maximise the “overall economic growth” of the sector as well as increase productivity. TRAI also pointed out that the Digital India programme’s success hinges on “ubiquitous, affordable data connectivity”.

TRAI also has another responsibility. This is to ensure a level playing field, and free and fair competition. Telecom services are highly competitive with multiple operators having spent huge sums to acquire licences, build and roll out networks, and market services across the country. In the midst of this, RJIL’s entry has proved to be extremely disruptive due to the offer of six months worth of free unlimited services and a commitment to make voice calls permanently free. It is arguable that a level playing field was not being maintained; in fact, that is what the other operators are alleging.

There are arguments to be made for both sides. This is a complex situation and it would be hard to comment on the legal fine print. tele.net connected with two experts in the telecom domain, who have somewhat conflicting opinions on the subject (see boxes).

Net, net, the regulations ban “predatory pricing”, which is normally defined as services being priced so low that other players are forced out. Six months worth of free services has, no doubt, stretched every other operator. But unfortunately, there is no clear quantitative definition in the relevant regulations as to what exactly constitutes predatory pricing. Nor is there clarity on related issues like market dominance.

TRAI is in the process of formulating clearer regulations and this process should be speeded up by the RJIL situation. It is also incumbent on the Competition Commission of India and indeed on all policy-makers to see RJIL as a test case and wake-up call, to review their own regulatory models.

Balancing imperatives within the sector will be a difficult task for the regulator. There will inevitably be some conflicts. A thorough review of the powers and responsibilities allocated to TRAI vis-a-vis the Telecom Commission and a review of the regulations could be very useful.

As things stand, it appears that the sector will have to cope with an intense price war for the foreseeable future. Consolidation has already started with a string of mergers such as Vodafone-Idea and RCOM-Aircel. The regulator and the licensor will both have to continuously review the situation and stay on their toes.

Competition is healthy but it must be fair, and consumers must get the best deal possible. Consolidation may be inevitable but it should occur in an orderly fashion. A service operator going bankrupt could create chaos across the entire telecom industry space.


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