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India's Telecommunications Industry: Policy, Regulation, and Indicators

This article discusses the role of regulation in India's telecommunications industry, the impact of regulatory measures, indicators of industry performance, and the results of a Telecom Regulatory Environment Survey.

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India's Telecommunications Industry: Policy, Regulation, and Indicators

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  1. INDIA’S TELECOMMUNICATIONS INDUSTRY: POLICY, REGULATION AND INDICATORSPayal MalikDecember 4, 2006 Pre-Conference Technical Meeting Under the Project: Equity and Access in Indian Infrastructure: Blending Competition and Regulation (Activity Co-financed by ECCP)

  2. OUTLINE • Role of Regulation • Policy and regulatory developments shaping outcomes of the industry in terms of indicators • Results of the Telecom Regulatory Environment Survey • Conclusions: Policies and Regulatory initiatives for taking the reform process forward

  3. Role of Regulation Reforms have involved more than just privatization Market liberalization and introduction of new laws and regulations Regulations, regulators and regulated industries interact in complicated ways that in turn affect the development of the industry Close relationship between the nature of a regulatory regime and investment behavior of the firms subject to that regime Discuss this by providing consistent set of indicators that allow for an analysis industry performance (from a regulatory, investment and industry point of view)

  4. Role of Regulation: In Principle • Maintain impartiality and credibility in contexts where the incumbent has traditionally been state-owned and state-privileged • Work towards public goals such as universal service

  5. Role of Regulation: In Practice However, • Country’s institutional endowment determines the nature of regulatory outcomes • Most striking feature of the Indian regulatory system is the relationship between the government and the regulator • Special political interests capture the state, which then has a potential of capturing the regulator and distorting the decision of the regulator and state owned firms • State thus might not be maximizing the “true” SWF, but the welfare function of some special interests • Need to model the political economy of the state to see how the “operational” SWF is constructed

  6. Teledensity CAGR Mobile : 73.82% CAGR Fixed: 9.46%

  7. Ownership

  8. Impact of Regulatory Measures: Lowering Tariffs Increasing access

  9. INCREASING ACCESS

  10. 1.20 1.00 0.96 0.80 0.67 0.64 0.60 0.56 0.60 0.54 0.40 0.27 0.13 0.20 0.09 0.08 0.11 0.08 0.00 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 Landline Mobile HHI of Concentration

  11. Increasing Competition

  12. Foreign Direct Investment

  13. Indicators of Performance

  14. State-wise differences in mobile teledensity

  15. State-wise differences in fixed teledensity

  16. Rural/Urban Teledensity

  17. TRE Survey • Perception of efficacy • Five dimensions derived from Reference Paper of the GATS Protocol 4 • Market entry • Scarce resources • Interconnection • Tariffs • Anti-competitive practices • USO • Panels of representative and informed respondents • Value of panel study assessments • Objective: Capture relevant informed opinions

  18. Results of the TRE Survey

  19. Market Entry • Licensing process has been a mechanism for liberalising markets; has also been one for controlling and restricting entry and raising large amounts of money through license and entry fees • Has now been substantially reduced to attract entry • Regulatory Intervention: Reduce mobile operator’s license fee from USD 4.5 billion to USD 1.5 billion and converted the regime into revenue sharing • TRAI facilitated the Unified access regime such that licensing regime did not come in the way of technological developments

  20. Market Entry • Unification process will be completed only when DoT removes all service based licences and brings them under a single umbrella of unified licence • Market entry procedure currently is ignoring the technological possibilities opened up due to convergence • However, market structure is not controlled by TRAI

  21. Regulation of anti-competitive practices • Aimed at introducing competition was fairly successful for mobile technologies • Much less successful for wire line (fixed), network • Inability to do away with the cross-subsidy regime in the form of ADC, till February 2006 • Ignoring the recommendations of the regulator on infrastructure sharing the DoT is unable to dilute the restrictive and monopolistic practices of the incumbents and provide a level playing field to new entrants • LLU for Broadband access • Some of the inherent problems with the TRAI Act and some due to the institutional relationship

  22. Internet and Broadband Access

  23. USO • TRAI plays a major role in implementing the existing USO program, it does not have the powers to change it • Benefits from using auctions: difficult to have sufficient participants bidding against the incumbent • Tend to be used by market players to extract too many concessions • Important strategic implications: effect the way firms compete against each other • Incumbent in an advantageous position bidding against operators relying on transfer or lease of assets from their competitor

  24. USO • Auction design disregarded commercial, legal and regulatory implications of the fact that the incumbent had a fair amount of network • An important precondition for these auctions to be truly competitive is that the regulator should put in place effective access regime in place prior to the auctions • Effective, non-discriminatory access regime for sharing of backbone: Special Obligations counterbalance its market power; Sunk cost arguments

  25. Backbone supply by operators (routekm; March 2005, incl. leased capacity)

  26. USO • TRAI has made progressive recommendations when it links subsidy provisioning away from VPTs and individual phones to the creation of infrastructure • Avoid a subsidy laden universal service programmer concentrating on individual phones • Public finding of backbone networks assurance of open access to those networks • Scope of the subsidy has been expanded to include “niche” players and not merely the large licensed players • Regulator has done its job and the government should take the initiative and implement policy

  27. Conclusions • Policy confronts the issues of licensing and universal service • Competition but also the government should not be able to stop entry (contestability) • Aprocess of conversion from specialized to unified licenses will be necessary to remove the inherited license restrictions, and to avoid intractable regulatory issues • Policy should encourage multi-platform competition and does not perpetually have to play catch-up with technological progress.

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