Explaining the Indian Telecommunication industry and the complexity behind competition existence?
The Indian telecommunication industry has experienced exponential growth and development in the past two decades. Liberalization and regulatory reforms allowed the sector to accept investments from both domestic and foreign investors.
The non-restrictive policy of the government in the 1990s allowed the inflow of cash for the sector to flourish. Private players were allowed in the market after a process of establishment of norms and regulations vital for the growth of the sector.
This was done as a part of the Liberalisation-Privatisation-Globalisation policies that the government undertook to overcome the fiscal crisis and balance of payment issues in 1991. The institution of the Telecom Regulatory Authority of India was established by the government to reduce its interference in deciding the tariffs and policies.
Towards the 20th century, the government was more inclined toward reforms and liberalism. This brought more private players and foreign investors to the Indian market. Furthermore, the license fees were greatly reduced that allowed every middle-class family in India to afford a cellphone, and thereby input more surplus to the entire telecom sector. In the Indian telecom sector during the late 90s and early 20s, the liberal policies became paramount, I would quote this as what Prof Eli. M. Noam referred to as, “the centrality of telecommunication infrastructure is a country’s economic and social life.”
Telecom performance reports showed that about 10-14 mobile providers were existing in the country during the time and at least 5-6 providers were providing services in each of the connected areas. The competitive forces exerted by these players aided the adoption of wireless services and also helped reduce tariffs throughout.
Despite the major policy initiatives of the past, the telecom sector is now on the verge of collapse. After years of growth, the sector is witnessing a fall due to the commercial operation of Reliance Jio. The change in tariff rates and reduction of data charges by Reliance Jio changed the economics of many telecom players. This facilitated their exit from the telecom sector.
The declining user base and increasing adjusted gross revenue made it difficult for healthy competition to equivalently exist among players. Low revenues, high taxation policies, and huge investments on spectrum and infrastructure have been causing dire trouble to the industry thereby impeding competition in the Indian telecom market.
How can one bring back competition in a scenario of restrictions and the existence of a soon-to-be-monopolized telecom sector?
The companies are being pushed by the regulatory bodies to align the prices in line with the costs of production, and this makes it difficult for competition to exist. In a digital India, the telecom sector needs survival, and for this, we need three players who are not on the brink of a dire financial crisis. The sector needs decentralization of purchasing and decision power to regulate more efficiently. The profit margins are decreasing and telcos need to level up the information and communications information to adapt to a digital transformed way. This can be done by creating a strong cross-functional interface.
IT and connectivity should be updated and should be reliant on technological innovations and customer expectations. Establishing policies to abolish the license fee based on adjusted gross revenue needs to be looked into. The adoption of regulatory disclosures and transparent norms to address the asymmetry in the telecom industry needs to be established. One can note that effective competition can be incorporated through three concepts: “Allocative efficiency, technical efficiency, and dynamic efficiency.”
To increase profits, the market power exercised by the company should not be restricted. This would help in efficiently allocating the resources and contributing to the economy invariance to the price adjustments to the consumer needs. There needs to be an initiation of equilibrium between promoting competition and checking anti-competitive practices. Being a capital intensive sector, competition needs to be incited by operators who would lower the costs through production efficiency and keep up with the latest economic models about digital trends.
There needs to be the symmetry of information and proper economic and policy legislations for competition impact assessment to easily get processed. Bringing in VNOs (virtual network operators) to buy bulk capacity from telcos for resale to end-users could be a vital point for expanding the market for existing services. Although there are high levies and restrictions for VNOs, easing those would prove to be highly beneficial for the sector to thrive.
Adopting the high-frequency spectrum by simplified access of the E band and V band spectrum will essentially support high-speed data transfer and thus promote competition between players and technologies. This would be done by de-regulation of the utilization of these spectrums. The foremost thing to be done is to lessen the regulatory burden for expanding consumer choices rather than focusing on the government’s revenue for vitalizing the sector’s growth.
By receiving direct support through cheap capital, land, support would essentially make India globally competitive. Thus, there needs to be a mechanism for the competition authorities and sectoral regulators to be existing together. For competition to be easily facilitated, the market needs to be free from any sort of unsatisfactory product quality. No players in the market should be suppressing the entry of new products or stifling innovation. The competition needs to stay out of any malicious interferences, predatory activities, or fraud against the customers or suppliers.
We need to have a transparent regulation that would avoid excessive entry resulting in operators not achieving the economies of scale. Excessive price competition in revenue generation needs to be avoided for the inevitable result in the inadequacy for procuring investments and innovation otherwise.
It has been argued that for the sake of consumer benefits, every telecom industry should at least have five “reasonably comparable rivals”, the numbers can vary slightly depending on the situation, and as of now India only has two players in the lead, with the second player close to financial risk.
Moreover, no firms have to hold a dominant position (this would mean a market share of 40% or more should not likely exist). The main purpose of policies and telecom regulations need to impact the market outcomes in ways that will move the prices, output, provide better service quality, service innovation, and healthy competition.
As Alfred Kahn once explained, “It is sometimes tempting to try to change outcomes to something more comfortable politically than the results of full competition.”
This is important to note because telecom regulators in India have attempted to constrain many service providers. The attempts to have the competitive outcomes biased by favouring the firms induce lower efficiency and harm consumers in the end. The government needs to take strides to maintain a kind of normalcy that existed during the liberal times.
The telecommunication industry needs to tread with caution, the government needs to imbibe liberal policies and promote competition. Failing to do so, the consumers will end up getting distressed when the thin line between crony capitalism and genuine relief ceases to exist. By doing so, the plans to achieve the $ 1 trillion economies for digital India seem a far-fetched idea for the time being knowing that each sector has been facing regulatory issues.
The decision lies with the policymakers and the regulators to know when intervention in the telecom sector is appropriate and how the intervention can benefit customers and their choices.
Articles Referred:
Uppal, Mahesh. “In defense of free telecom markets. Or, how to make Indian telecom competitive while offering cheap services.” Times of India, 2020,
Kathuria, Rajat. Strengthening competition in telecom is key to realising India’s digital ambitions. The Indian Express. Accessed 2020.
Prasad, R.U.S. “The Impact of Policy and Regulatory Decisions on Telecom Growth in India.” Stanford University: Center for International Development, 2008.
Parsheera, Smriti. “Challenges of Competition and Regulation in the Telecom Sector.” Economic and political weekly, 2018.
