Background :- The digital era is marked by its potentials and disruptions. The new children on the block such as Artificial Intelligence , nano-technology, 3d printing are still beyond the reach of our imagination. In this ever changing and ever evolving era, it is only natural that the rule books had to be taken a deeper revisit and restructuring. And it is more so true for regulators and regulations. For starters, it is a good idea because we should not be left with “Analog” regulators in this “digital” age.
Details:-
Telecommunications is one sector where the changes have been disruptive and innovative, covering a wide range of services far removed from the traditional fixed-line telephones—the natural monopoly segment associated with the sector.
The telecommunication sector now includes networks, internet services, virtual markets, the Internet of Things, cloud computing and the entire gamut of services using the information highway with innovative approaches to combining voice and data. It is the digital space of virtual markets that promises growth to Indian start-ups and multifold benefits to consumers.
Should this sector come under the purview of the Telecom Regulatory Authority of India (Trai) or the Competition Commission of India (CCI)? Or should it be left to the market, with regulation limited to safety and dispute resolution mechanisms for consumers? After all, inappropriate intervention by any regulator can sound the death knell for the sector.
Trai’s attempts at repositioning itself in the new dynamism of markets has seen it come out with consultation papers, most recently on fixing retail tariffs. These are positive developments that should provoke wider discussion. Unfortunately, Trai, like all regulators, is caught between an archaic legislation and a sector that defies legal confines.
“Forbearance”, or distancing from fixing retail tariffs, is the new principle that Trai plans to follow. Under the suggested dispensation, telecommunications service providers (TSPs) will be free to fix their retail tariffs and are only required to comply with a list of conditions that emphasize transparency, consistency and clarity.
However, Trai seems compelled by Section 11(2) of the Trai Act to bring in two principles of tariff fixation. Even more surprising is the choice of non-discrimination and predation as principles of tariff fixation.
As ex-post facto outcomes, the two principles, fixed on an ex-ante basis, will fail to capture the benefits of a nuanced dynamic pricing policy that the sector is currently witnessing. Instead, TSPs such as Bharti Airtel Ltd, Vodafone India Ltd, Reliance Jio Infocomm Ltd, Mahanagar Telephone Nigam Ltd (MTNL), Bharat Sanchar Nigam Ltd (BSNL) and other service providers may prefer to revert to the traditional staid pricing schemes, if only to avoid regulatory intervention.
Discriminatory pricing between consumer groups can be consumer-welfare enhancing while zero pricing need not necessarily be predatory, especially if the marginal costs are zero. Pricing decisions taken by firms are based on several factors, which include information of consumer consumption patterns and “willingness-to-pay”; their own long-run cost structures and the pricing strategies of competitors. Under competitive conditions, price discovery is by the market. The Trai Act structured in the economics of natural monopoly set within the framework of “principal agent” may not be able to appreciate dynamic pricing schemes.
As a licensed activity, the tail-end activity of TSPs also comes under the domain of Trai. Section 11(2) mandates Trai to fix tariffs for all licensed activity. Unease stems from the fact that Trai lacks both the expertise and the legal backing.
Meanwhile, CCI, under the Competition Act, has no powers to fix tariffs. It can only investigate allegations of abuse using the economic analysis of monopolistic competition facilitated by the right to private action (Section 19) unique to the Competition Act. This right vested with CCI provides access to private consumer information that is so essential in understanding discrimination or defining predation.
Further, the commission has the right to levy fines but Trai doesn’t. If Trai seeks powers for damage claims by way of subordinate legislation, it will only encourage firms to indulge in forum shopping to the disadvantage of new entrants and consumers.
If expertise and legal backing indicate that predatory pricing and discriminatory pricing are in the realm of CCI, it is equally important to see if the Competition Act constrains the CCI from assessing competition on the information highway.
The digital space of this highway has no boundaries between products and services and between nations at odds with traditional price-cost parameters of competition. Antitrust authorities are currently grappling with the following questions :
i) how to define the relevant product market when the product is free;
ii) how to demarcate geographic boundaries for viral networks that do not follow national boundaries;
iii) what constitutes predatory pricing or discrimination when prices are not charged purely on account of the fact that marginal costs are negligible within the framework of legal structures.
Emergent new metrics of competition fail to establish unequivocally the dominance of large entities and of abuse. The recent dismissal of the allegation of predatory pricing by CCI in the Bharti Airtel versus Reliance Jio case was on traditional measures of dominance. As in the case of the consultation paper, CCI’s decision is a welcome one. But does it provide comfort for intervening in future information markets? That said, it does provoke a rethink on prevailing regulatory Acts if regulators are to be effective in the markets of the future.
Receive Daily Updates
Recent Posts
Steve Ovett, the famous British middle-distance athlete, won the 800-metres gold medal at the Moscow Olympics of 1980. Just a few days later, he was about to win a 5,000-metres race at London’s Crystal Palace. Known for his burst of acceleration on the home stretch, he had supreme confidence in his ability to out-sprint rivals. With the final 100 metres remaining,
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]Ovett waved to the crowd and raised a hand in triumph. But he had celebrated a bit too early. At the finishing line, Ireland’s John Treacy edged past Ovett. For those few moments, Ovett had lost his sense of reality and ignored the possibility of a negative event.
This analogy works well for the India story and our policy failures , including during the ongoing covid pandemic. While we have never been as well prepared or had significant successes in terms of growth stability as Ovett did in his illustrious running career, we tend to celebrate too early. Indeed, we have done so many times before.
It is as if we’re convinced that India is destined for greater heights, come what may, and so we never run through the finish line. Do we and our policymakers suffer from a collective optimism bias, which, as the Nobel Prize winner Daniel Kahneman once wrote, “may well be the most significant of the cognitive biases”? The optimism bias arises from mistaken beliefs which form expectations that are better than the reality. It makes us underestimate chances of a negative outcome and ignore warnings repeatedly.
The Indian economy had a dream run for five years from 2003-04 to 2007-08, with an average annual growth rate of around 9%. Many believed that India was on its way to clocking consistent double-digit growth and comparisons with China were rife. It was conveniently overlooked that this output expansion had come mainly came from a few sectors: automobiles, telecom and business services.
Indians were made to believe that we could sprint without high-quality education, healthcare, infrastructure or banking sectors, which form the backbone of any stable economy. The plan was to build them as we went along, but then in the euphoria of short-term success, it got lost.
India’s exports of goods grew from $20 billion in 1990-91 to over $310 billion in 2019-20. Looking at these absolute figures it would seem as if India has arrived on the world stage. However, India’s share of global trade has moved up only marginally. Even now, the country accounts for less than 2% of the world’s goods exports.
More importantly, hidden behind this performance was the role played by one sector that should have never made it to India’s list of exports—refined petroleum. The share of refined petroleum exports in India’s goods exports increased from 1.4% in 1996-97 to over 18% in 2011-12.
An import-intensive sector with low labour intensity, exports of refined petroleum zoomed because of the then policy regime of a retail price ceiling on petroleum products in the domestic market. While we have done well in the export of services, our share is still less than 4% of world exports.
India seemed to emerge from the 2008 global financial crisis relatively unscathed. But, a temporary demand push had played a role in the revival—the incomes of many households, both rural and urban, had shot up. Fiscal stimulus to the rural economy and implementation of the Sixth Pay Commission scales had led to the salaries of around 20% of organized-sector employees jumping up. We celebrated, but once again, neither did we resolve the crisis brewing elsewhere in India’s banking sector, nor did we improve our capacity for healthcare or quality education.
Employment saw little economy-wide growth in our boom years. Manufacturing jobs, if anything, shrank. But we continued to celebrate. Youth flocked to low-productivity service-sector jobs, such as those in hotels and restaurants, security and other services. The dependence on such jobs on one hand and high-skilled services on the other was bound to make Indian society more unequal.
And then, there is agriculture, an elephant in the room. If and when farm-sector reforms get implemented, celebrations would once again be premature. The vast majority of India’s farmers have small plots of land, and though these farms are at least as productive as larger ones, net absolute incomes from small plots can only be meagre.
A further rise in farm productivity and consequent increase in supply, if not matched by a demand rise, especially with access to export markets, would result in downward pressure on market prices for farm produce and a further decline in the net incomes of small farmers.
We should learn from what John Treacy did right. He didn’t give up, and pushed for the finish line like it was his only chance at winning. Treacy had years of long-distance practice. The same goes for our economy. A long grind is required to build up its base before we can win and celebrate. And Ovett did not blame anyone for his loss. We play the blame game. Everyone else, right from China and the US to ‘greedy corporates’, seems to be responsible for our failures.
We have lowered absolute poverty levels and had technology-based successes like Aadhaar and digital access to public services. But there are no short cuts to good quality and adequate healthcare and education services. We must remain optimistic but stay firmly away from the optimism bias.
In the end, it is not about how we start, but how we finish. The disastrous second wave of covid and our inability to manage it is a ghastly reminder of this fact.