It's time for India to get its regulatory house in order

By Tony Brown

A little bit of authoritarianism from a government can sometimes be a good thing – especially if it means getting your country’s telecoms industry in working order.

That sentiment goes against the grain, but when you contrast the telecoms regulations in the region’s megamarkets of China and India, you can hardly help but conclude that the iron fist is preferable to the velvet glove when it comes to delivering clear-cut regulatory outcomes.

India is praised for being the world’s largest democracy, but there is little doubt that its admirable ethos of allowing every man to have a say on every issue – including critical regulatory ones – is holding back its telecoms market in many respects.

If there is one industry that needs a fast-moving regulatory process in which decisions are handed down smoothly and with minimum delay, it is the telecoms industry.

Few industries can compare to the telecoms industry, where technologies are constantly evolving and competition in a country can be seriously compromised if a regulator does not ensure a timely and orderly deployment of new services, such as 3G or high-speed broadband.

A comparison of the farcical distribution of 3G and broadband-wireless-access (BWA) licenses in India and the clinical allocation of licenses in China sums up the differences between the markets.

Sure, China had a long road to 3G licensing before the Ministry of Information Industries and Technology finally allocated licenses in early January, with speculation having raged for the better part of five years about when licenses would be issued.

But the delay was mainly due to the government’s insistence that 3G licensing be put off until locally developed 3G technology TD-SCDMA could compete with foreign-developed 3G technologies, not because of bureaucratic buck-passing.

It would be fair to bet that having been issued 3G licenses, China’s mobile operators will launch commercial 3G services no later than June, while their Indian counterparts – especially the private operators – are facing a much longer wait.

The Telecommunications Regulatory Authority of India (TRAI) – which does not actually make regulations – issued its first recommendations on 3G- and BWA-spectrum policy in September 2006. But well over two years later, India’s 3G- and BWA-spectrum-allocation policies still have more holes in them than a block of Swiss cheese.

And the Department of Telecommunications’ original Jan. 16 date for the 3G-spectrum auction looks more ridiculous every day.

I won’t go into minute detail about the woes of the 3G-spectrum-allocation process, but to put it into perspective: If you have already missed your original date for selling 3G spectrum and haven’t even gotten around to finalizing the reserve price for spectrum, perhaps that’s a sign you could have handled things a little better.

Longtime watchers of India’s market will not be surprised at the farce playing out in the 3G-spectrum-allocation process. The country’s telecoms regulations seem almost designed to create chaos and duplication of procedure, and the 3G-spectrum process has followed a familiar path.

In most countries, a body called “telecommunications regulatory authority” might be expected to have at least some power in shaping regulations. But not in India, where the long-suffering TRAI simply gets to make “recommendations” about policy to the DOT.

The DOT is under no obligation to accept the TRAI’s recommendations and has ignored many relating to 3G. After reviewing the recommendations, it passes them to expert advisory body the Telecommunications Commission, which fine-tunes the policy and sends it back to the DOT.

Typically, the DOT will then say the final regulations are ready for release, after which key details will be leaked to the press, to be met with immediate opposition by other powerful ministries – typically the Ministry of Finance or Ministry of Home Affairs – which demand changes to the proposed policy, forcing the DOT to pass the buck to the cabinet to resolve the impasse.

This dysfunctional regulatory structure cannot be allowed to proceed much longer if India is going to bring its telecoms sector into the 21st century.

The 3G delay is a serious problem, given operators’ dire need for additional spectrum, but a bigger problem is that the delay will also hold up the rollout of WiMAX services, which will play a crucial role in increasing India’s low broadband penetration.

The DOT opted to interlink 3G and BWA pricing, setting the reserve price for BWA spectrum at 25% of the reserve price for 3G spectrum, on which the Cabinet Committee on Economic Affairs reportedly has the final say. This means that BWA spectrum cannot be auctioned until the 3G-spectrum reserve price has been set, leaving the rollout of WiMAX in limbo.

The WiMAX delay would perhaps be more forgivable if the government had not so badly bungled fixed-line-broadband rollout, leaving India’s broadband penetration – even in key industrial cities, such as Mumbai, Delhi and Bangalore – at levels comparable to those in regional backwaters, such as Indonesia and Thailand.

State-owned fixed-line operators BSNL and MTNL seriously screwed up the introduction of fixed-line broadband services by failing to roll out adequate broadband infrastructure in the past five years, and they are only now trying to redress the problem their lack of investment has created.

TRAI Chairman Nripendra Misra has said that because BSNL and MTNL failed to make the most of the chance they had to exploit their monopoly, they should be made to open up their last-mile networks to private players, such as Reliance and Bharti.

But the problem is that the DOT and several other key government ministries – especially the notoriously interventionist Ministry of Finance – will not allow local-loop unbundling to take place, because of the financial implications for BSNL/MTNL and the subsequent loss of revenues to the government.

The shortsightedness of an outlook that puts the short-term economic interests of the government ahead of the long-term infrastructure needs of the country seems outrageous but sums up perfectly the dysfunctional nature of India’s telecoms regulatory framework.

India needs to take a serious look at how it develops telecoms regulation and replace its confused, multilayered approach with a streamlined and direct system that delivers policy that is clear-cut and on schedule. To that end, the position of the TRAI needs to be addressed urgently.

The TRAI is staffed by good people, who are knowledgeable about the telecoms market and the policies needed to make it grow. But at the moment it is like a coach on the sidelines who is constantly having his game plan amended by the captain on the field.

There is little point in having the DOT continually ask the TRAI to undertake exhaustive research and draw up detailed policy recommendations, only to ignore many of those recommendations and devise its own policy.

Either the TRAI’s recommendations should be taken seriously or policy should be drawn up completely by the DOT or one of its affiliate bodies, such as the Telecommunications Commission.

In addition, the influence of the finance and home-affairs ministries on the telecoms-policy-making process needs to be greatly reduced. The ministries have their own agendas to pursue, and they are not always going to chime with those of the telecoms industry.

It’s fine to give these ministries a voice in the consultation process before policy is drawn up, but once policies are finalized and sent to the cabinet it is ridiculous to let them demand changes and send the whole process back to the starting blocks.

It might not sit comfortably with the consensus-based approach of many of those in the government, but it is time for the gloves to come off if India is to establish a world-class telecoms industry.