Regulation in India in the era of convergence

Citation

Chowdary, T.H. (2002), "Regulation in India in the era of convergence", info, Vol. 4 No. 4. https://doi.org/10.1108/info.2002.27204dab.001

Regulation in India in the era of convergence

T.H. ChowdaryInformation Technology Advisor to the Goverment of Andhra Pradesh and Director of the Center for Telecom Management and Studies, Hyderabad, India. E-mail: thc@satyam.com

Keywords: Communications technology, Convergence, India

Abstract India has failed to capitalize on the dramatic advances in telecommunication technologies over the past two decades because the government has failed to understand the implications of convergence and put in place a regulatory framework appropriate to the new era. However, the Convergence Bill tabled in 2001 shows that there are those in government who have learned the lessons from around the world. Nevertheless, significant problems remain in the way in which telecommunications policy is being implemented.

The greatest developments in telecommunications and information technology in the past two to three decades are optical fibre transmission giving 6.4 terabits per second per fiber (there could be 400 fibers in one cable); repeated reuse of radio frequency spectrum for connecting communicating devices to network (GSM and CDMA technologies and cellular mobile telephone systems); electronification of all information (images, voice, text and data) and its digitization and formatting into packets for transmission; solid state storage of gigabits of information on a thumb nail size silicon chip; mini-sized satellite earth stations; and the Internet as the network for storage, transmission and exchange of information. All of these developments have led to the transformation of the traditional telecommunications network into an electronic, photonic transport system for information. Moreover, all of these developments are bringing about falling costs. The demonopolisation of telecommunications and the resultant competition are bringing technologies to the market almost as soon as they are developed, with continuously falling prices for services. A few of the developments and the results are captured in Tables I-IV and Figure 1.

As far as the network is concerned, there is no difference between voice, images, text and data. The separate networks that used to exist, one for each form of information, have all converged into one network, i.e. the Internet. There can be several transportation media for information just like for people and goods (railways, roadways, airways, waterways) – terrestrial or satellite-based micro-wave radio; optical fibre cables in the ground and on the sea bottoms. Broadcasting can be over the air, as it traditionally has been, or could be on the Internet itself. We can see the clear distinction between the infrastructure, i.e. the network comprising telecommunications and computers on the one hand and services that this information infrastructure could support on the other. Services can be traditional ones like telephony (voice), video (images), fax, data and broadcasting, information and content for banking and commerce and education and entertainment. The Internet can be thought of as the post office, telephone exchange, library, stock exchange, supermarket, bank, travel agency, entertainment, broadcasting station, studio, political platform, university, class-room, marriage bureau, pollster, service-deliverer (G2C) …

Figure 1 The evolution of procession capacity of microprocessors (logarithmic scale)

Developed country reform

These developments have all come in a short period over the past 20 years or so but the telecommunications and broadcasting systems have been in existence for over a century. Therefore, the weight of tradition and the structures for provision and regulation of these services that were built over many years are deeply entrenched in the mindset of politicians and bureaucracies. The old regimes were government-centered, either directly or indirectly through regulators. Developed countries, especially the G7, realized about ten years or more ago that the traditional involvement of governments in the delivery of services or in regulation were no longer relevant as society and its economy become increasingly information-intensive and the economies of countries become globally interdependent and integrated. The G7 held three summits devoted solely to telecommunications and information technology, and came to the conclusion that demonopolisation, deregulation and massive private sector involvement were essential for constructing the global information infrastructure (GII) and informatising every activity of the people. The European Union (EU) has given considerable thought to the appropriate regime for telecommunications and information technology. The Competition and Telecommunications Directorates of the EU did excellent work to chart out policies and the regular requirements and appropriate structures that were necessary to fully exploit the new technologies.

By now, almost every country of any significance has divested government from the responsibility of investing in and providing telecommunications services. Competition has been introduced and promoted. Independent statutory regulatory bodies have been or are being created to promote competition and to facilitate the roll-out of services based on new technologies. Bottle-necks such as the local loop, which in the possession of incumbents are an obstacle to the delivery of a variety of services to the consumer, are being removed by mandating the unbundling of the local loop and making it available for use by anybody, including the incumbent, to deliver new services. The potential of convergence will be realized only if the distinction between the infrastructure and the services it can support is clearly understood.

Over the past decade India has been slow to reform its telecommunications sector but, fortunately, the New Telecom Policy 1999 takes cognizance of convergence. Despite the stubborn opposition of the incumbent Department of Telecommunications (DOT) due to its inadequate understanding of convergence, the Government tabled the Convergence Bill in Parliament in 2001.

Demonopolisation and independent regulation

Demonopolisation of the networks and services in India began in the year 1992. Licences for different services were given at different times. The conditions for the same type of service depended upon when they were given. For example, cellular mobile telephony licences were first given in 1993 only for four cities, but in 1995 covered all the States. The licence conditions for these two sets of licences were different. In 1998, the Internet service policy was first enunciated. This not only ended the monopoly of the Government company Videsh Sanchar Nigam Ltd, the licence conditions were completely different from those that had been set for any other service. The most distinctive departure from previous licences is that the ISP companies do not have to pay any entrance fee, licence fee or share their revenues. In the light of this, previous licences (telephony, mobile and fixed, radio paging, e-mail, etc.) appear ridiculous and irrational. The government had to see reason and alter all the licence conditions within four years of giving them in the light of new technology and licences for new services. Even as this was taking place, development in wireless technology and computers enabled basic telephony companies to provide mobile telephone services within a city, using the wireless local loop exactly like cellular services in cities in 1992. This is called "limited mobility", but has no technological distinction from that of full mobility. However, the licence conditions in terms of financial liability are totally different for basic telephony companies offering limited mobility to the disadvantage of the latter and the cellular mobile companies. Actually 90 per cent of customers of cellular telephone companies will be satisfied with the limited mobility that fixed service operators provide at a fraction of the rate charged by the cellular companies without any financial burdens that the cellular operators have to bear under their licence conditions. In other words, a technological development has made a mockery of giving separate licences for mobile services and fixed services with limited mobility.

India's practice of persisting in giving different licences for different services, some service-wise, some technology-wise, from time to time is absolutely in dissonance with convergence. The regulators are of the old economy mindset relevant to a permit-licence-quota economy, when the state presumed knowledge of what is good for people, consumers and the country. It is tragic that people who have not renewed themselves, drawn from the old organizations, are responsible for regulation in this new era. Unfortunately, few people understand the implications of legislation like the Convergence Bill, otherwise there would be no attempt to have a single body to regulate the content as well as the carriage. The electronic photonic information infrastructure facilitates storage, transmission and exchange of content. The content moves not only on the information infrastructure, i.e. Internet, but also in the newspapers, films and over-the-air radio and TV broadcasts. Why should only that which moves on the Internet be regulated by the proposed Communication Commission of India? Is it wise to have different regulators depending upon how the content is moved?

Separateness of infrastructure and services

It is possible to have a time and technology independent handling of convergence. There should be one regime for infrastructure, i.e. the electronic photonic transportation system comparable to the mass transport system. This must be allowed to be built just as we allow roads, sea and air ports to be built. The almost infinite bandwidth that is possible on optical fibre cables suggests that once cables containing appropriate fibers are buried, then we can derive from them whatever bandwidth is required. So there may not be scope for large numbers of competing infrastructure providers. The second regime should be for the provision of content services. There may be voice or images or text or multimedia. We have the example of the ISP policy. Any company and any number of them should be free to provide whatever service they can develop and sell to the market. The state can derive revenues from the 5 per cent service tax. Loading telecom and information services with any other costs like licence fees, entry fees or revenue sharing will detract from the nation's policy of making telecommunications and information services more and more affordable, to ever increasing sections of people.

Over 40 million homes are connected for cable TV by a few thousand small enterprises. These cable TV networks can be upgraded to provide two-way communication for telephony as well as for Internet service. The (1998) ISP policy of the Government permitted this. This means that cable TV companies can also provide telephony, Internet and data services. Electronics by way of digital subscriber loop (DSL) equipment can be put on the copper conductors in cables that connect subscribers to telephone exchanges. They provide huge bandwidth. Therefore, telephone companies can deliver TV signals to their customers from servers which store video or multimedia content. Telephone companies can compete with the cable TV companies.

Broadcasting used to be over-the-air (terrestrial and satellite). But if plenty of bandwidth is available as in the cable TV systems and the DSL impressed cable pairs of the telephone system, broadcasts could be delivered by either of these. More felicitously, if broadband connection to the home is available, the Internet itself can distribute the audio and video broadcasts. Here again there are multiple ways of delivering a broadcast – over the air, via satellite, and on the Internet. If we give a certain document for delivery to the addressee, do we care whether it is carried by air, rail or road? We may only specify that it should be delivered within so many hours. The courier can choose what mode of carriage he can adopt. He will only charge for the speed with which the delivery is effected. Would there be any sense in giving separate licences for delivery of a document by different modes and regulating them differently? Similarly, it would be senseless to regulate telecoms by the technology used.

Voice and pictures are being digitized and packetised and are just like data sent over either the public Internet or specially engineered data networks, having enough bandwidth so that different transmission delays for different packets do not result in the degradation of the voice or video delivered to the recipient/communicator. There may be a difference in the quality depending upon what network (satellite, narrow or broadband cable) is used. But since services of different quality are priced differently, leaving the choice to the customers could be sufficient. There is no sense in giving separate licences with separate conditions when voice/video is delivered over different networks using different technologies.

Quality is continuously improving and there are international consortia which are evolving open standards as befitting the Internet, the network of networks. All facilities and services and signaling that are available in the traditional public switched telephone network (PSTN) will be available on the Internet. As the PSTNs in the world will continue to exist for some time to come, gateways for these legacy systems to interwork with the Internet are also being installed. Now there is the glorious prospect of a worldwide platform on which thousands of software professionals can develop applications for migrating all human activities to be carried out in a different ways on the Internet. For example, there need not be physical offices for banks; there need not be physical classrooms for educational purposes. There need not be physical supermarkets, and so forth. And for the information-intensive, knowledge societies where up to 70 per cent or more of people will be knowledge workers, services can be created by using information technology, i.e. computers anywhere and delivered for consumers anywhere over telecommunications, cheaply through the Internet. On the Internet it is now possible to have virtual private networks. You dream a service and it will be realized within two to three years.

Objectives of regulation

It is becoming difficult even in the most developed countries (North America and The European Union) for regulators to understand the implications of rapidly changing telecommunications and information technologies, and the effect the changes have on regulation for competition, prices and interconnections. There are almost continuous legal battles between the licensers and regulators and network and service providers. Instead of the market becoming the arbiter of the fortunes of companies and technologies, regulators and law courts, with their imperfect understanding of technology, are often erroneously impacting the industry and so turning out to be a mill stone round the neck of the companies and consumers and, of course, the technology developers. Regulation should mainly be for one or many of the following objectives:

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  Facilitating the demonopolisation process, i.e. nursing the birth of the competing networks and service providers. In telecommunications there can be no multiplicity without interconnection and inter-working of different networks. Technically and professionally, this has been happening for over 100 years. Every country is free to adopt any telephone system but all the telecom systems in the world interwork with one another. The International Telecommunication Union (ITU) helps the setting of standards after considerable discussion to ensure the seamless interconnection and inter-working of the world's different telecom networks. And a call mail can go from a person in one country, through several other countries, to the subscriber in the destination country. The regulator has to enforce interconnection and inter-operability. The incumbent usually resists interconnection but the regulator has to enforce this at fair prices and in good time.

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  The regulator has to ensure orderly evolution of competition so that the capital, by whosoever collected from citizen-shareholders and their financial institutions, is not destroyed. But at the same time the regulator has to see that the competing companies do not form a cartel to dictate prices or quality to the consumers. They have to increase the number of competitors and relate them to the market size so that both the interests of consumers, i.e. choice and price, as well as the health of the companies are preserved and promoted.

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  In certain countries licensing is done by government in its sovereign power, but realizing that it is subject to influence by politician-ministers, increasingly the tendency is to entrust licensing to a statutory commission. In that case the regulator even in the government has a clear mandate, namely what is the purpose of deregulation? Is it generation of revenue to government by auctioning licences? Or is it to extend telecommunications and information services to ever-larger sections of the population by making them available throughout the territory and at the lowest price for a basket of services? These different objectives lead to different methods of licensing by regulators. If it is revenue-generation, then licence fees are costs to companies and therefore will be reflected in prices to consumers. Consumer welfare will be diminished in this method.

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  If the objective of deregulation is maximization of consumer welfare, then the prime criterion for award of a licence should be the lowest price to which the company will charge for a basket of services. There could be more services or a larger quantity of the same services in the prescribed basket. Those which are above the prescription need not be regulated. The price of this basket could be indexed to the inflation or consumer price index. Also, a deflating factor (price capping) could be in-built to take into account the gains due to technology. The regulator has to be conscious of the fact that he is mimicking a perfect market with an unlimited number of suppliers and unlimited number of consumers until competition emerges. As competition increases, the regulator will have to withdraw and cease to interfere.

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  In any civilized democratic country the consumer, like the voter, is expected to be king. But an uninformed king cannot rule intelligently. Also, a consumer by himself can never be sufficiently equipped to deal with a company or the regulator. There are consumer associations, but even they will be ineffective if they do not have the required information. They will have to be helped in this regard by the regulator mandating that reasonable amounts and types of information shall be given to consumer bodies, so that the latter can intelligently intervene in the regulatory process – how many companies should be licensed, when should more companies be licensed, whether there should be any price fixation and how it should be done, and how the quality of service can be prescribed and in what manner infractions are to be ascertained and punished/ compensated. The regulator will have to find a method of financially assisting consumer bodies to enable them to discover relevant facts and understand their meaning for effective intervention.

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  Finally, equity requires that every type of telecommunications and information service should be accessible anywhere in the country, i.e. rural and remote areas or poorer sections of the population should not find it difficult or painful to avail themselves of telecom and information services. Theories about universal access and universal service abound. Who should provide this universal access? Which is the most efficient and economic way of providing? How should the deficits in the provision of socially mandated universal access or service be reimbursed and what are the elements of this universally accessed service? For example, is it sufficient to provide plain old telephone service or Internet access also and in that, low speed or (broadband) high-speed access? Should it be multimedia including video conferencing, etc.?

Capacity in the regulatory body

The capacity or qualifications that should be available in the regulator can therefore be seen to be awesome. Mostly it is not engineering; it is economics, sociology, law, accountancy and financing that are agitated before a regulator. Engineering and technology are about the least. In the countries of the West, the realization of what is essential in the regulatory body is quite high. But in India it is poor. First, the Telecom Regulatory Authority of India (TRAI) came not in the beginning of the process of deregulation (1992) but after the incumbent operator (who was also the policy maker) laid down the conditions of licensing and the criteria and awarded of the licences (1997). Understandably, everything was loaded against the private telephone companies (P-Telcos). The regulatory body consisted entirely of people experienced in the practice of permit-licence-quota-raj in the name of socialism. Their mindset is that they alone know what is best for the citizen and the country, and that they know everything. Also, the politician who is in fact, the manager-owner of the public sector monopoly enterprises has not wanted to let go his hold, his influence and his control. So regulation though statute was so designed as to give the final word to the politician minister. As soon as the P-Telcos started operating, all the deficiencies and contradictions started to appear. Technology was obliterating the boundaries between the separately licensed different services. For example: e-mail and ISP licences; limited mobility by fixed service providers; and full mobility by cellular mobile telephone companies. And then the hostility of the incumbent operator for the emerging private companies was obstructing the implementation of the licences and undermining the financial viability of the P-Telcos. The results of these conflicts, obstructions and crises were:

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  The TRAI had to be restructured by statute within three years of its first constitution. Mainly, this involved the splitting of one body into two; one concerned with the affairs between the licensed companies themselves and another to deal with the issues between the licenser and licensed companies.

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  The supercession of the National Telecom Policy of 1994 (NTP, 1994) by another, namely, the New Telecom Policy of 1999 (NTP, 1999) to take into account the unstoppable onrush of convergence of technologies and therefore the destruction of boundaries between different networks, for different services.

Convergence bill

Now telecommunications can no longer be seen apart from information technology and Internet and broadcasting. The NTP 1999 talked of convergence. It had also led to the passage of the Information Technology Act (ITA) in recognition of communications and information technologies facilitating the migration of every economic activity like banking and selling, educational and entertainment, on to the Internet. The regulatory bodies are inadequate to deal with what might happen on the Internet. So, under the impact of various litigations and also in the light of what our ministers are able to see and understand (even a communist country like China was obligated), the wiser elements in the government managed to take a few important steps like the introduction of the Convergence Bill. This recognizes the convergence of technologies and, therefore, the possibility of a composite licence; that is one licence for every and all types of services. It makes a distinction between the infrastructure; that is, physical telecommunications network and the services that the network delivers. So, there would be another licence only for infrastructure provision.

The Convergence Bill removes licensing from government and places it in the Communication Commission of India (CCI), the new statutory body which will supersede the two separate tiers (TRAI and TDSAT) of telecommunications regulation now. For the first time, the sole privilege of providing telecom services (on a monopoly basis) by government is removed and this privilege will now be vested in the Indian enterprises to be licensed by the CCI.

The CCI is envisaged to regulate the broadcast content or one-to-many communications of what is carried on the information infrastructure. This is very wrong. Just like for mass transport, which can be human beings or iron ore, information could be voice, image, or text or simple data. Information is not only communicated through electronic networks but in the print media and also through the cinema. There is a Press Council; there is film Censor Board. There is no sense in having one content regulator for the press, another for films, and a third for those that are electronified. The content regulation provision must be removed from the CCI. Whether the press and the film and broadcast content should all be regulated or over-seen by one commission or different ones must be a separate question, separate from what happens on the telecommunication information networks.

Universal access

The most important thing is that for a long time to come not all homes can have their own access to telephone or to the Internet. Therefore, there has to be public access. This is provided by the system of public telephones – the amazing phenomenon of STD/ISD telephone booths along and across all the streets, roads and their junctions in towns and cities and at least one in every village. The network for them was provided by the Government's Department of Telecommunications. These public telephones, especially in rural and remote areas, meant for the poor, are not justified as a commercial proposition. They could be sustained only by subsidies. International and national long distance calls and to some extent, business subscribers in cities, are all charged prices far above costs and the difference is utilized by the monopoly department or company to provide rural services as well as public telephones. Since every sector of telecom is now subjected to competition, the prices cannot be far above costs and the surplus dwindles. Therefore, no company or enterprise can provide these loss-making public policy mandated services, whether they be a public telephone or public Internet kiosk. In most countries, the obligation to provide this universal access is put on the incumbent who was a monopolist before deregulation. It makes sense because the incumbent has the most widespread network and it is therefore least costly for them to put telephones in un-telephoned villages and areas and maintain them. But since they are also subjected to competition, the deficit should not be borne by them alone. The right policy would be to work out these deficits and make them good from a common pool of revenue, to be generated by taking a certain percentage of the gross revenues of every telecom service provider, to contribute to a universal access/service fund (UA/SF). There are two ways of discharging the universal access/service obligation:

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  Tenders could be invited statewide for providing the services for a given period of time with a specified quantity of service and awarding the licence to the one who wants the least subsidy; or

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  The regulator working out a strict economic cost and benefit analysis of the capital and maintenance expenditure incurred for the universal access/service obligation, provided by the incumbent and reimbursing him to the full extent of the deficits.

Between these two, the first is preferable and has lately been implemented in Chile, Peru and probably, in Nigeria. We can further improve the practices there by requiring that all the revenues from public telephones and public Internet kiosks and such facilities, provided in places like schools, libraries and primary health centers as a matter of social policy, go to the network to which they are connected. The UA/SF will then mean the physical connection either by wires or wireless of the public telephone/public Internet kiosk and the customer premises equipment to the nearest network point and its maintenance. There will then be no haggling and disputing as to how much money should be retained with the UA/US provider and the network operator.

Conclusion

Licences have got to be competition-neutral, technology-neutral and time-independent. This can be ensured by a very simple single principle. There are two classes of licences only. One is for the provision of infrastructure; that is the electronic photonic system, comprising optical fiber cable and microwave systems, either earth-based or satellite based, bandwidth switching and control equipment. These could be one type of licence, which could be given to any number of people, at any time. As this is the essential infrastructure the providers should not be saddled with any licence fee or revenue-sharing or anything. The second class of licences shall be for services. Anybody, any enterprise can provide any type of service in any city and at any time. It can hire infrastructure (bandwidth) from any of the infrastructure providers.

Every company should provide a certain percentage of its gross revenue to constitute a National Telecommunications and Information Services Development Fund (NTISDF). This fund shall be used to:

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  Provide subsidies to those who carry out public service obligation of universal access or service.

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  Financial assistance to consumer bodies for their effective involvement in the regulatory process.

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  Grants to R&D bodies engaged in telecom and information developments.

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  The cost of licensing and regulation.

This NTISDF amount should not go to the Consolidated Fund of India but into this ad hoc fund only. This policy will be similar to what we have already adopted in respect of Internet service provision.

Most importantly, the worldwide experience of deregulation and licensing of telecommunications and information networks and services must be continuously studied so that we do not go on committing blunders, correct them partially so that they only become mistakes and correct them again to reduce them to errors and then live with them. Essential to this is the need to staff regulatory bodies with young and qualified, energetic and daring people.