governance, political economy, institutional development and economic regulation

Posts tagged ‘TRAI’

Privacy – an elite fantasy

privacy

Elite concerns are usually disconnected from the ground reality. For the 1 per cent of Indian who live privileged, cocooned lives, the judicial right to privacy created by the Supreme Court yesterday will add yet another layer with which they can insulate themselves from the “barbarians at the gate”. So, here is what the rich may now be able to do which they couldn’t earlier.

Is the right to euthanasia next?

First, they may now be able to refuse medical treatment and die in their beds, peacefully, instead of being compulsorily hooked up to tiresome, life-saving machines in hospitals. But try explaining this “right” to the millions of poor Indians for whom just getting admitted to hospitals is still a dream and refusing treatment would be unimaginable.

Deletable past lives

Second, the well-heeled may now be able to press for being judicially forgotten – all traces of their past lives and identities expunged, giving them a fresh start without having to flee to distant London or arid Dubai. Contrast this with the Herculean efforts the average Indian makes to become part of a database and have an officially recognized identity – a voter card, a passport, a PAN card, anything which proves that she exists.

LGBT sex may become legitimate

Third, those with alternative lifestyles – the Lesbian, Gay, Bisexual Transgender (LGBT) community might now hope to be free of the notoriously archaic Section 377 of the Indian Penal Code, which criminalizes everything other than straight sex. But would this give them the right to marry a partner of their choice; adopt children or be socially accepted?

Evidencing crime will become harder

Now ponder the downsides. Law enforcement agencies struggle to manage terrorism, Naxalism, urban mafiosi, drug pushers and armed rural gangsters even today. “Privacy” concerns will provide a legal shield to undermine information collection, crime detection and investigation. Nothing less than the over-the-top, draconian Armed Forces (Special Provisions) Act – used today only in the “disturbed” areas in Kashmir and parts of the North East – would be effective. Since gangsters can afford to hire the best lawyers, the violation of their fundamental right to privacy in the process of enforcing the law, will now become a favourite ploy to keep these worthies free to wreak havoc.

How intrusive is the Indian State anyway?

Will this fundamental to privacy help the 200 million slum dwellers or the unknown millions who sleep under the stars on urban streets? Is not our fear of the “big State” overblown? The India I know is under policed, under governed and under regulated. There is a plethora of agencies, laws and rules to bind down anyone and yet very few – mostly the timid, those mindful of their public image and the law respecting middle class get intimidated by the legal spaghetti. The rich buy their way out of any mess and the poor are so inured to danger and risk that it is second nature for them to live with uncertainty.

Biometric targeting of beneficiaries to be abandoned?

Take the case of Adhaar for verifying the identity of those using the Public Distribution System (PDS). Recent studies in Jharkhand by responsible social scientists – Jean Dreze and Reetika Khera – found that 15 percent of the eligible PDS beneficiaries were excluded because of technical glitches or access problems in using Aadhar as a test of identity. But 85 percent of the beneficiaries were targeted correctly. If the right to privacy eliminates the use of Adhaar, we will be back to what Rajiv Gandhi famously called the 25 percent approach to poverty reduction – where 75 percent of the funds are siphoned-off by intermediaries. How and why would a reversion to a system which has huge inclusion errors (ineligible people getting benefited) be any better?

Big data to be throttled?

Finally, consider how retrograde is the fight by “right to privacy” advocates against big data. It is big data – the billions of pieces of information on human behavior and preferences linked to specific human demographics, which enables algorithms to predict trends, thereby aligning products and services with customer needs. This is what makes big data commercially valuable. In price sensitive markets like India, telecom and e-commerce penetration is being driven by the potential to monetize big data. Putting brakes on this process means putting brakes on the rolling out of technology services which will become more expensive if the actual user is to pay for them.

India lost an opportunity in 2014 when facebook- Bharti Airtel wanted to roll out free internet services on mobiles. TRAI regulations ensured that this venture never took off, thereby slowing down internet access for all except the 300 million people in the upper most income segments who can afford it.

Tilting at windmills

Nandan Nilekani is now an evangelist against “digital colonialism” in the context of tech majors like Google and Amazon aggressively expanding their presence in India. We should be wary of tech industry insiders playing the “anti-foreign” card. Similar attempts were made by the infamous “Bombay Club” to scuttle the 1992 economic liberalization. Their contention was that liberalizing the domestic market was fine but Indian industry should continue to be protected from foreign competition. We are fortunate that the government of the day paid no heed to this self-serving agenda.

Keep India open for competition

India is a big economy with very shallow industrialization. We need to remain open to all economic actors – domestic and foreign who want to invest in India. It would be a huge mistake to emulate the xenophobia of the United States and draw up our bridges. Data is the new oil. Data security needs to be ensured, irrespective of whether data is stored in India, or overseas. But generating anti-foreign hysteria is not in our interest as we try to integrate into global supply chains and become a part of the global value creation eco-system.

It is easy enough to legislate rights. We have many notional rights. Creating a level playing field for all citizens to enjoy these rights, equally, is another matter altogether.

Also at http://blogs.timesofindia.indiatimes.com/opinion-india/privacy-an-elite-fantasy/

India’s pressured public institutions

BOOK REVIEW
Rethinking Public Institutions in India
Devesh Kapur, Pratap Bhanu Mehta, Milan Vaishnav (Eds)
Oxford University Press
548 pages; Rs 995

Rethnking Pub Inst in India

Public institutional reform has a stale air about it. There are plenty of options but little action. The sombre packaging of this book adds to this gloom. Possibly, the “monkish”, value-for-money branding is a consciously adopted tactic, setting it apart from the current trend favouring glitz and hype. The authors appear to be flinging a dare — that in their case substance needs no gloss. They are right.

PBM

The editors’ academic pedigree is reassuring. Pratap Bhanu Mehta is the best-known of them, a public intellectual extraordinaire and the acknowledged voice of evidenced, liberal political thought.
Devesh
His co-editors Devesh Kapur and Milan Vaishnav are US-based academics.
milan vaishnav
This new publication is a follow-on of a 2007 publication Public Institutions in India: Performance and Design co-edited by Messrs Kapur and Mehta.
The contributors are an eclectic mix of UK-, US- and India-based academics and Indian civil servants, serving, repositioned or retired. What is common is their deep and systematic association with public institutional development and an enviable record of publishing their work and opinions.
Are public institutions in India doomed?
So, are central public institutions going to seed? And does that explain India’s future challenges? The introductory chapter, written by the editors, provides an elegant, broad sweep of drivers and trends in institutional malaise, highlighting areas where performance has been dangerously below par. But the helicopter view is a mite too one sided, veering to a dark view of the state of national institutions.
Institutional resilience outnumbers the failures 
A more nuanced and refreshing view emerges from the succeeding chapters, each about a single institution. James Manor, writing on the Presidency, exquisitely details how this apex institution, despite the occasional failures of individual incumbents – think Fakhruddin Ali Ahmed who signed on the dotted line to impose emergency in 1975 and Giani Zail Singh, who was not averse to being actively political – has been a steady hand, safeguarding constitutional propriety and citizen rights from potential executive and legislative transgressions.
Errol D’Souza, reviewing the Reserve Bank of India, describes its pugnacious success in enlarging its regulatory space, solely through its performance-driven credibility. E Sridharan and Milan Vaishnav pen a fluid and attractively rendered tale, about the Election Commission of India, which has similarly earned its spurs. Eighty per cent of Indians trust it because of its remarkable conduct of timely, fair and efficient elections. Madhav Khosla and Ananth Padmanabhan describe how the Supreme Court has nurtured the public’s trust by courageously and consistently ruling in favour of equity, inclusion and fair play. However, they warn that dark clouds loom unless justice is delivered more efficiently.
Navroz Dubash writing on new infrastructure regulatory institutions – the Central Electricity Regulatory Commission (CERC) and the Telecom Regulatory Authority of India (Trai) – acknowledges that in the initial years both had to fight severe challenges from publicly-owned monopolies and their patrons in government. Two decades on, they are the arbiters of positive change. The CERC has overseen competition in bulk electricity supply. The Trai has curated highly competitive private telecom customer services and tariffs. However, Dubash correctly points to the need for enlarging the regulatory space such that all actors – the Parliament, Judiciary and the Executive become active players in negotiating regulatory outcomes, with the Regulator playing the balancing role,
Institutional failure more visible in sub-national entities
“State failure” is a malaise more visible in sub-national institutions, which have failed to imbibe the positive changes taking place in related central public institutions. State governors, legislatures, the lower judiciary, state public financial management institutions, electricity regulatory commissions, vigilance departments, and election commissions are often severely blemished. T R Raghunandan woefully records that institutions of local government remain ignored, underfunded and underused, except in Kerala, Karnataka and West Bengal. Consequently, inclusive growth suffers and an opportunity is lost for embellishing and inculcating local traditions of results-based democratic functioning.
But there are black sheep at the national level too
Not all national institutions, despite inherited advantages, have developed benignly. Parliament is one such. M R Madhavan ruthlessly excavates the reasons it has lost the public trust. R Shridharan similarly unravels why the Central Vigilance Commission, India’s anti-corruption agency, and its investigative arm, the Central Bureau of Investigation, have failed to establish their credentials. The former is merely a tool, to be used selectively, by the executive against its own officials. The latter is at its nadir. The moniker “caged parrot” accurately reflects why it has lost credibility in the fight against corruption.
The Comptroller and Auditor General (CAG) of India, the supreme audit institution, gets mixed reviews from R. Shridharan and Amitabh Mukhopadhyay. The CAG is uniquely placed and significantly empowered, to guide and assist Parliament to exercise granular oversight over the executive. Its path-breaking exposure, under Vinod Rai, of massive inefficiency and financial impropriety in spectrum and coal allocations lifted its public profile. But, in its “independence”, also lies the danger of it being ignored, through a “conspiracy of silence”, between a dysfunctional Parliament and a pliant executive.
The civil service, particularly its elite component – the All India Services (AIS), which constitute 0.03 per cent of the total civil employees and just 1 per cent of the Group A employees of the Union Government – have unambiguously failed. K P Krishnan and T V Somanathan admit that nothing has changed for the better over the past decade. Recruited on merit, this tiny elite thereafter enjoy the rents accruing from that initial, one-time achievement. But the authors shrink from endorsing that the AIS be phased out and its functions reallocated to the specialist cadres of the Central Services — these constitute 99 per cent of the Group A civil employees, who currently fester despondently.
This is a multi-layered, exhaustively referenced publication, which surgically exposes the dark side of public institutional dysfunction. But it also provides sufficient evidence of institutional resilience, on which an enlightened political leadership can build. A must-have, for all those who either belong to, or wish to join, the frustratingly uplifting community of public institutional developers.
Adapted from the authors review in Business Standard June 15, 2017 http://www.business-standard.com/article/beyond-business/public-institutions-under-scrutiny-117061401505_1.html
raj ghat
Raj Ghat – Gandhi ji’s memorial keeps the flame of “independence” alive

TRAI’s ersatz socialism kills innovation

TRAI

R.S. Sharma the new TRAI chairperson and  architect of “ersatz socialism” in the www. Photo credit: economic times.com

By ruling against Facebook’s Free Basics type of innovation, which offers, hitherto undreamed of, free but limited access to data services, Telecom Regulatory Authority of India (TRAI) has regressed to a version of “ersatz Nehruvian socialism”, which persist long after Panditji. It would have astounded him that his thoughts are still evoked to preserve the privileges of a thin crust of 250 million elite Indians whilst doing little for the 700 million poor Indians. Consumer benefit has been sacrificed yet again for ideology.

Nehruvian Socialism and Net Neutrality

Remember the car you used to drive in the 1970s? Most don’t, because it was an expensive, exclusive asset owned only by the rich. Even today Indian cars remain a rich person’s trophy because of the high cost of owning and using one relative to average income. Only 10 per cent of the 230 million Indian households own a car. Ironically, the TRAI order of February 8, 2016, is driven by a similar vision — preserving notional equity and freedom within a small bubble of 250 million well-off, “Internet connected” Indians owning smartphones.

poor buy

India’s poor- ersatz socialism permanently excluded them from the bubble of shiny cars. Net neutrality similarly excludes them from the virtual world. Photo credit: bbc.co.uk

Shunning innovation in the pricing of access to the Net under the garb of Net Neutrality has precisely this bubble effect. TRAI has decided to protect the existing ecosystem which privileges platform managers, content and app developers who today have unpaid access to 250 million netizens. But it ignores the need to grow this market to include 700 million Indians who are too poor to access data services other than phone calls and SMS.

TRAI’s vision of the www is like that of an owner of an expensive mall- keep the poor out.

The net is like a Mall except that you have to pay to get in and guards are actively instructed to keep shabbily dressed people out so that rich customers can float through an air-conditioned heaven- just like in Dubai. The good news is that in the real world business serves the needs of the poor through street markets because the municipality facilitates it. in a TRAI ruled internet the poor are to shunned, exactly as in expensive Malls and no street market is to be made available for the poor. The poor are to be kept invisible – as in China or Rwanda where the strong arm of the State keeps the poor severely controlled.

It is unsurprising that the Congress which has made ersatz socialism into a family business should support “Net Neutrality”. But that this should happen under a government led by Prime Minister Narendra Modi which has vowed to “free” India from the social and economic chains of the past, shows that this government needs to put on its “thinking” cap.

TRAI order equates porn with socially relevant content

TRAI’s decision is perverse and here’s why. It throws out the baby with the bath water. Whilst banning price “discrimination” for content, it also effectively disallows “positive discrimination” or “affirmative action” for access to socially responsible content. In essence it says a consumer must pay to access content whether it is porn or wikipedia.

Consider a large Indian company which may want to subsidise a telecom service provider (TSP) for providing free access to educational sites targeted at helping poor or dalit kids crack the JIIT exam. The TRAI order disallows this effort.

Similarly, it bars a poor, pregnant woman, say on the outskirts of Patna, from availing free access to check the cost of having her baby in a decent hospital in Mumbai, where her husband works. Sorry, says the TRAI order. You must pay the TSP to access the Net.

It is hypocritical to simultaneously support free content-unhindered by state control whilst arguing against “affirmative action” for providing free access to the poor to socially relevant content, developed just for them.

It is not just about Facebook

It’s not only about Free Basics. It is the principle of killing innovation that’s the real concern. The Trai order kills innovation in developing socially relevant content for the poor because there is no way now of getting the content to them.

Free Basics is driven by commerce. Free access has to be paid for by someone. Today it is Facebook subsidising access, tomorrow it could be a Tata CSR project. In Africa, Net subscriptions of the poor are subsidised by foreign donors.

Net neutrality is bad economics

More practically, there is money at the bottom of the income pyramid. Activists, platform managers, content and app developers are being short sighted in ignoring the role of “free access” in getting them there. They lack the business vision of Hindustan Lever which innovated shampoo sachets two decades ago to give every woman an affordable taste of luxury. Or do they fear that international players with deep pockets may get there first before they get their act together? Are they using the garb of “Net Neutrality” as a fig leaf for self-preservation? Do existing Indian players, TSPs want to keep Facebook out so they can do the same once they become big enough?

Predatory pricing based on enormous private equity funding is the essence of the IT start up.

All IT start-ups attract customers by subsidising prices. Take Uber, Flipkart or any other. The fear that they will start increasing prices once they get bigger is misplaced because unlike the bricks and mortar world entry barriers are low in the digital economy which ensures sufficient competition to keep each big player on their toes. Guarding against predatory pricing is a slippery slope for TRAI. It can result in taking the fizz out of e-commerce which is growing by out-pricing the corner mom and pop store and traditional taxis by relying on serial funding from investors, not profits to fund unheard of price discounts. In any case India has laws and the Competition Commission of India to regulate dominance and monopoly. TRAI is hardly equipped to rule on anti-trust issues.

Today’s startup is tomorrow’s business biggie

flipkart

The Bansals of Flipkart- value $ 15 billion and counting- give Amazon a run for its money. Photo credit: livemint.com

Ironically, whilst making it easy to do business for “start-ups,” we are killing commercial innovation by business biggies. Can an “innovation” friendly eco-system really be sliced and diced, such that it is a “free market” for start-ups but a stiflingly regulated environment once they become a business biggie, like Facebook? In the virtual economy startups grow on the strength of innovation not government protection. In any case, the record of ersatz socialism in growing small industry via protection is miserable. The Indian Telecom industry, the only success story of privatisation and reform, has grown from being yesterday’s “start-up” to today’s business biggie. Why discriminate against it because it has been successful?

The digital eco-system must be fair to all stakeholders, not just the software and content developers

There is a symbiotic relationship between TSPs, content providers and app developers. TSPs, represented by Cellular Operators Association of India (COAI), buy expensive spectrum from the government, install and maintain the telecom network to link-in netizens and ensure that the number of eyeballs grows. If the content available is attractive, netizens spend more time surfing, thereby boosting TSP revenues. They enrich app developers by buying an app off the Net.

To access content on Flipkart, Snapdeal, Amazon, Uber or Myntra there is no additional charge other than the Internet access cost. So are these companies just plain generous? No. Like Facebook or Google, they make their money by selling the data they gather from the netizens — demographics and preferences — to market analysts and sometimes to governments; they leverage their eyeball score to increase advertising revenue and get additional private or public equity funding. This is the money they burn to offer fantastic discounts and out-compete brick and mortar pop and mom stores.

So why does National Association of Software and Services Companies, an Indian IT lobbyist, support the Trai order? Because it is in the interest of the software developers and content providers they represent to try and hang-on to the freebie they have — the roving eyeballs of netizens for which they pay nothing.

Why do the parents of the www (US & the Brit Sir Tim Berner) support net neutrality?

Berner

Sir Tim Berner-Lee inventor of the www. Photo credit Wikipedia.com

Indian activists are fond of using the United States as an exemplar of non-discriminatory pricing access and the trenchant advocacy of Tim Berners-Lee – the inventor of the www-for net neutrality. This is their Brahmastra to clinch the argument for “Net Neutrality”.

This is unsurprising. For most netizens, the US is the mother lode of innovation, which it certainly has been. But cut-paste is bad tactics for good governance. The context in which things work is key. Activists and governments routinely overlook the difference in context in a slavish tendency to adopt best practice international templates.

Why the US is different

US poor

The poor people of the US: photo credit: rediff.com

In the US, the poverty level income is $2,000 per capita per month. Data access costs just 5 per cent of income or $100. In India, the poverty level income is $30 per capita per month. Data access costs $10 or one-third of a poor woman’s income. The cost of Internet access is not an economic barrier in the United States. The US is under no compulsion to abandon “Net Neutrality”, an ideology which sounds noble. For India, TTAI’s ideology of “Net Neutrality” means the economic exclusion of 700 million poor people.

TRAI’s technical incompetence drives the ban on differential pricing

The bottom line  is that despite its rhetoric on “net neutrality” TRAI is technically incapable to monitor data services to detect instances of blocking or preferential access for content favoured by TSPs. This why it has opted for the blunt instrument of a complete ban on commercial innovation in pricing and financing. This is the worst option driven by regulatory incompetence not by high minded adherence to principles. A sad comment on the state of regulation and of consumer protection in India.

Adapted from the authors article in Asian Age February 10, 2015 http://www.asianage.com/columnists/trai-s-socialism-kills-innovation-136

TRAI: Misplaced rage against Facebook

Even as Davos was worrying over the haemorrhage of international capital from emerging markets and Finance Minister Arun Jaitley was at pains to point out that India was different, a different narrative was unfolding in the Telecom Regulatory Authority of India (TRAI) in Delhi. It had to do with a consultation paper issued by TRAI on “Differential Pricing for Data Services” inviting responses from the public. The consultation process closed on January 7.

The breaking news a few days back was the quixotic outburst by a senior TRAI official in a letter addressed to the $260-billion social media giant, Facebook, harshly rebuking it for inundating TRAI with template responses from nearly 2 million users in support of the Facebook-promoted Free Basics. The senior official was apparently outraged at the manner in which Facebook used its brute “majoritarian” muscle to intimidate TRAI with overwhelming public opinion and asserted that if such tactics were accepted, “it would have dangerous ramifications for policy making in India”

Facebook CEO, Mark Zuckerberg (AP Photo/Jeff Chiu)

Readers will remember that last year a TRAI consultation paper on Net Neutrality was similarly responded to by net neutrality fundamentalists to demonstrate the ground swell of opinion in favour of a strict version of neutrality. At the time TRAI was indulgent of this innovative way of crowd sourcing opinion. This time around it is Facebook, not indigent activists, on the front foot; the leadership in TRAI has changed and it seems to be open season for charges and counter charges.

Zenophobia or pique?

The “establishment” and a large swathe of Indians, bred on traditional distrust of the “Ugly American”, are quick to take offence at the in-your-face lobbying. To be fair, Facebook clearly went over the top in pushing its case. Americans play hardball and have to be restrained when dealing with other cultures, like ours, where soft, behind-the-scenes contact achieves far more.

In the instant case, Facebook’s evangelical assertion that Free Basics is all about giving free access to the “poor” lacks credibility. Free Basics is a process innovation to improve business for Facebook and the telecommunication service provider (TSP), which provides the access. But isn’t that what all successful businesses are supposed to do. Why else would you invest in them?

TRAI has developed a solid reputation for being a savvy, growth-oriented regulator. The recent outburst is quite out of sync with its image and one hopes that it remains an outlier.

The case against free access “walled gardens”

Now, on to the substance of the matter. The case against “walled gardens” like Free Basics is built around two reasons.

First, in a price-sensitive market like India, a freebie is habit forming – like reading a free newspaper which provides selective news. But it is insulting to readers to assume that they cannot see that they are getting only limited stuff. For getting a child married, they are unlikely to use the freebie and instead insert an advertisement in a popular daily, if they can afford to do so.

The second argument is that TSPs are likely to favour content providers who pay them in return for free access and shun or disadvantage others who do not. This discriminates against start-ups which do not have the financial muscle to reimburse the TSP for free access. Thereby innovation itself will be stifled, like great art which remains undiscovered because the big galleries will only stock established artists.

These are powerful concerns in an ecosystem which has grown around unhindered and near real time access to innovation via the internet.

Strict net neutrality imposes unnecessary costs on the final user of the net and sharply constrains assess in poor countries which walled gardens can help breach   

There are three counter arguments why fears that innovation will be stifled by walled gardens.

First, internet-based content is a growing market-especially in India. Only 25 per cent of Wi-Fi subscribers in India access it via a mobile. Less than a 100 million people in India have a 3G or a 4G enabled handset (one of every twelve persons). This illustrates that the potential for new business via new and better content providers is virtually unlimited.

Network_neutrality_poster_symbol

Second, creating content is a highly competitive business like tailoring. If your trousers don’t fit, you are unlikely to order repeats. Similarly, if the content on Free Basics fails to keep up with content in the same space available elsewhere, you will switch your TSP or opt out of Free Basics. If enough apps on Free Basics are duds, it will eventually negatively impact Facebook itself, as users will either migrate to another “free walled garden”. Even if walled gardens are habit forming, they will compete with each other, possibly even on the same TSP network.

Third, the IT ecosystem automatically filters out non performers. The TSP needs data traffic to make its returns. Content providers need eyeballs for successive rounds of funding or they are forced to shut shop, merge or sell out.  This is not an ecosystem which is kind to those who are not on-top.

If the concern is to ensure voice for minorities, there is nothing to stop a walled garden from coming up specifically targeted at socially important, but fringe, groups – the lonely blogger writing on about the rights of the Rohingyas; social activists raging against growing inequality and other such laudable causes. There is nothing to stop a government-supported entity from launching a free wall where anyone can post and to which access is free. This has a parallel in public service broadcasting. Facebook’s social objectives may be doubtful. But surely non-state actors can fill that breach.

Light touch regulation requires nerves of steel and a deep resolve to not be influenced, either by public opinion or ideology. It also requires technical expertise and industry experience to drill down from motherhood concepts like “net neutrality” and contextualize its application to the market and the regulated entities. So long as the regulator remains neutral, the net is safe.

Net Neutrality can be breached if it is in national interest; does not result in dominant monopoly and is the outcome of technical or business innovation. Let’s not hang our hat by outdated ideological shibboleths. Sometimes majoritarian opinion is worth considering even if it comes via an industry biggie.

Adapted from the authors’ article in Swarajyamag http://swarajyamag.com/biz/trais-misplaced-rage-against-facebook/

Selling spectrum: Telecom’s Kohinoor (Reposted by the author from http://swarajyamag.com/)

spectrum

(Photo credit: http://www.intelligent-eneregy.com)

Now that the Spectrum Big Bazaar auctions are over, it’s time to sift through the smoke and dust of the financial battle and figure out who lost and who won. But before the juicy part, here are the bare facts for those who don’t spend their lives following spectrum auctions.

Limited spectrum on offer

First, the bulk of the spectrum sold in the 800, 900 and 1800 MHz frequency bands relates to licenses issued in 1995 and 1996 which are now expiring after 20 years. Very little new spectrum has been added by either the government releasing spectrum, currently reserved for the army (TRAI opines at least three times more than required) or from the cache given free to BSNL and MTNL, two government-owned telecom companies which grossly underuse their spectrum allocations because they just can’t compete with private service providers despite the public gift of free spectrum. So much for the “public Kohinoors” the government loves to hoard in public interest.

Fiscal success

Second, the government secured firm bids worth Rs 110,000 crore (US$ 17.8 billion) as revenue from auction—25 or 33% paid upfront and the rest to be paid in 10 annual instalments after a moratorium of three years.

Spectrum in the 900 band garnered an incredible 120% more than the reserved price. TRAI had predicted and service providers moan, that they have paid through their nose just to hang onto spectrum they had till now.

The 1800 band secured an auction value only 14% above the reserved price. TRAI had predicted that the small amount and non-contiguous spectrum on offer would negatively impact valuation despite the 1800 band being a fallback option for supporting service in the preferred and scarce 900 band. The 800 band secured a respectable 64% above the reserve price value.

The big fight for 900 band spectrum

Third, the 900 band was the star of the auction. Despite comprising only 46% of the spectrum auctioned, it secured the lion’s share of revenue—71% of the total auction value. The 1800 band, comprising 27% of the spectrum auctioned, did the worst with a revenue share of only 9% of the auction value. The 800 band, used mainly for data transfer, balanced its share in spectrum auctioned of 27% with a share of 21% of revenue in auction value.

The institutional short circuit

Fourth, let’s look at the institutional arrangements within which the auctions happened. Telecom Regulatory Authority of India (TRAI) has an overwhelmingly “advisory” role. The real decision making power on spectrum pricing; quantum of spectrum to be sold and the constraints to be imposed on the buyers of spectrum—right to swap, share or leverage spectrum financially, all vest with the Minister in the Department of Telecommunications (DOT).

In this sense, TRAI is very similar to the low profile Central Electricity Authority which is an adjunct of the Ministry of Power and advises it on techno-economic matters. Note that the similarity extends even to the nature of the entity. Both are “authorities” not “commissions” like latter-day utility regulators, including the electricity regulators, are titled.

This institutional arrangement has advantages. It reduces the risk for TRAI in offering innovative advice. After all, should the CAG or the CBI come calling with their inevitable investigations, usually once the government has changed, TRAI can turn around and coolly assert they decided nothing, being mere advisors to DOT. Also, this arrangement liberates TRAI from considerations of political economy- all of which weigh-in for government.

The arrangement also encourages TRAI to be transparent and participatory in its functioning which is a boon for ”Telecom watchers” who are not industry “insiders”.

TRAI’s consultation papers are drafted painstakingly. They provide a wealth of information and outline options for decision making. Most importantly, TRAI encourages open participation. None of this happens in the DOT.

Once an issue reaches the “in box” in DOT, the iron curtain crashes down; information put out is terse; formatted to confuse the “outsider” and as minimalist as Swedish furniture. The cumbersome “Right To Information” route becomes the only way to get access. But even then, the rationale for the many commercial decisions the DOT takes, is never disclosed. TRAI itself has, courageously, voiced its frustration on this “zipped lips” policy of DOT.

Undeniably, DOT could be much more.

transparent and “un-babu like”. Equally, TRAI has to learn to play ball. Adopting a strictly “technically correct” approach is not what an “advisor” is paid to do. In fact, by “islanding” itself, TRAI has cut its significant technical expertise off, from the deliberations in government around the “second best” option, which is the kernel of public decision making.  The correspondence between TRAI and the DOT around its recommendations for the 2015-16 spectrum auctions bears out this institutional short circuit.

The bottom line is that, whilst the existing institutional arrangement could work better, what exists is far better than deciding everything in the cozy confines of the DOT. TRAI Chairs and its members have been outstandingly progressive in safeguarding public interest.

Fiscal success but a tunnel vision?

Fifth, is the question how successful has this particular auction been? Undeniably, from the purely fiscal point of view, no one—hopefully, least of all the CAG—can quibble. But the issues TRAI raised, and which remain unanswered, are pertinent.

Should “public silver” be sold only for short-term gains or should there be a wider strategic objective? Telecom adds 3% to the GDP, so a 30% growth in telecom adds a significant 1% point to national growth and could meet one-eighth of the target of 8% increase in GDP. The bulk of the incremental, “good-jobs” are in the information technology space and depend on robust growth. Identifying needs and monitoring the delivery of social services are strongly dependent on a pan-India telecom network being available. Consider also that in a vast, poor country like India, where 25% of the citizens are domestic migrants who remain culturally, strongly linked to their home village or town and it becomes easy to view telecom access as a necessity for improving the quality of life.

Clearly, no one wants a situation where funds from spectrum sale in the hands of the government, come at a huge cost hurting the growth of private telecom services or adversely affecting their affordability.

The problem is that both government and TRAI are prone to fall back on the “cost-of-service”—heavy handed model of regulation, which entails examining the pockets of the private service providers, either to ferret out if they are making too much profit (DOT) or too little profit (TRAI) and somehow adjust the profit by either squeezing service providers (DOT) or conversely compensating (TRAI) through spectrum pricing.

Undealt with legacy issues compromise the future

The Spectrum Usage Charge (SUC) is one such additional levy, over and above the spectrum cost. It is levied as a proportion of the Adjusted Gross Revenue of a service provider. Actually, there should be no usage charge at all, since spectrum is now auctioned and bidders reflect a part of their expected surplus in the bid. The user charge is a revenue generating instrument, left over from the days when spectrum was “allocated” administratively. TRAI has repeatedly suggested that it be brought down transparently from 5% to 3% before an auction, to induce bidders to reflect the reduced cost into a higher bid. But DOT has resisted this move without ascribing a reason for its obduracy.

More importantly, now that the auction is over, reducing the user charge retrospectively is not an option. Any reduction in license cost will now go directly into the pockets of the service providers. Worse, those bidders who may have “inside” knowledge of a probable post-auction reduction, would have been enabled to bid lower on the basis of this “privileged information”. A classic case attracting the allegation of potential “crony capitalism”.

The current Minister of Telecom is too savvy a person to fall into this trap. But political office is transient with too little institutional memory. In comparison, service providers bid their time better than a leopard and the institutional memory of an elephant. It is an unequal match which can only go against the public interest.

Why go to Nagpur via Kanpur?

But even on the issue of technical efficiency to achieve a narrow fiscal objective, TRAI had raised “red flags” which merit more serious consideration. TRAI had warned of a price war if additional spectrum was not made available for new comers in 900 or 1800 bands. If newcomers have to fight it out with incumbents, clearly, bidders will scrape their revenue models to the bone. This is what has happened.

In the 900 MHz band, the bids are more than 2.2 times the reserve price. Was there really that much undiscovered fat in the revenue models of the service providers? Clearly, if there were such huge margins then the auction has achieved what markets are supposed to do– cut the producer surplus to optimum levels and pass the benefits to customers.

But there could also be a fine print to this bidding madness. DOT has still to take decisions on the property rights of the new spectrum owners. We know that they can share spectrum in the same band (900 and 1800 MHz being considered as one band) with other service providers, but on what terms? When and how will they be able to trade it with spectrum in other bands within and outside their License Areas? When does government intend to implement it’s “in-principle approval” to create a post-auction market for spectrum trading? If not, why not?
All these are “untapped value pools” for enhancing producer surplus post the auctions. Are we sure that this discretion will be used well?

More importantly, recent history in natural resource management in India shows that the use of administrative discretion immediately raises “red flags” and can invite an adverse comment from the CAG or CBI investigations on the charge of “crony capitalism”.

The spectrum auction is for 20 long years. Does this mean that if the Minister or his officers err on the side of complete probity and safety, it effectively seals our economic future at a sub-optimal equilibrium level till the next auction two decades hence? And only because they failed to take these crucial decisions upfront prior to the February auction?

Of course, the Indian bureaucracy has a delightful habit of springing welcome surprises. It is entirely likely that they will find a way out of this conundrum. But TRAI’s observation remains relevant—why go to Nagpur via Kanpur?

Who won and who lost

And finally the juicy part—who won? The Finance Minister won big time. He got around Rs 9,000 crore in FY 2015 to plug part of our fiscal deficit, courtesy the generosity of the winning bidders, who paid up part of the upfront payment before time to meet the March 31st  fiscal deadline.

The DOT lost the opportunity to burnish their image and came out instead looking like bumbling, inefficient, indecisive babus.

TRAI covered itself in short-term glory by being outspoken—almost pugilistic and technically sound.

The handful of six private service providers, being canny business people, frankly don’t care how the government wants to play the game, so long as they win out in the end—which some of them are likely to.

Customers are on a roll with the fizz of tailored talk and data plans and an ascending escalator of bundled services to care too much one way or the other.

And the nation—well, any outcome which helps reach the tight fiscal deficit target helps India get good risk ratings; cheaper credit and most importantly international recognition that PM Modi means business. All’s well that ends well.

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