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Introduction

This section deals with core issues of telecom policy and regulation. Here, the debates tend to be a little more esoteric than in the previous two sections. The direct implications for consumers of the issues discussed here are not obvious. But they do matter. The interpretation and enforcement of rules in this 'structural' layer of telecom networks have resulted in single telecom operators dominating large geographical areas and in reducing the availability and increasing the price levels of telecom services.

If governments and regulatory agencies get the 'structural' layer wrong, the ramifications can be serious. The design of the Access Deficit Charge (ADC) regime in India, documented in Chapter 10, resulted in enormous additional revenues flowing to the government owned telecom operator BSNL. Revenues like these, together with those from high revenue customers who were already on its network because of its historical position as the monopoly provider, enabled BSNL to build an enormous backbone network that reduced the costs of supplying voice and data services to the rural regions of India, as documented in Chapter 7.

Being present in rural areas and having exclusive access to cheap backhaul capacity, the former monopoly was now in a position to capture most of the universal service funds disbursed by the government, as detailed in Chapter 9. The process that began with the stated necessity of compensating the government owned incumbent for providing services in rural areas below cost ends by transferring massive amounts of funds under various labels from the customers of the private operators to the government owned operator. The evidence so far does not suggest that the objective of narrowing the urban–rural divide is being achieved, as shown in Figure S3.1. Despite the massive transfers to the incumbent, the gap has increased, not decreased, suggesting that incumbent-favoring policies have failed.

Not all the results of the policies of placating and subsidizing the incumbent have been bad. Teleusers at the BOP who were surveyed from Indian rural areas in the study and were reported about in Section 1, reported greater access to fixed phones than their counterparts in Sri Lanka (Figure S3.2).

The chapters in this section raise some critical policy and regulatory issues, but do not necessarily give the final word on them. But it is possible for discerning readers to evaluate the pros and cons of an issue in the light of their specific circumstances and reach appropriate conclusions.

Are the 'big pipes' on which large volumes of voice and data are hauled over long distances within and between countries essential facilities that should provide open access to all competitors on non-discriminatory terms and at cost-oriented prices? Or should they be considered the 'private property' of the incumbents to be used as they please to advance their business in the new competitive environment?

Figure S3.1
Urban versus Rural Subscribers (Fixed Plus Mobile) per Hundred Inhabitants in India (1998–2005)

Source: TRAI (2005).

Figure S3.2
Use of Fixed and Public Access Phones by BOP in Rural Sri Lankan and Indian Localities

Source: LIRNE asia (2005).

Chapter 7 discusses these questions at length, based on the Indian experience. The Government of India, it appears, has taken a position that the incumbent is free to use its backbone network to optimize its competitive position. The entrants are invited to build their own backbone networks, which several have started to do. The chapter lays out the calculus of determining the commercial viability of building competing fiber networks. Indeed, the private operators with a national scope, as well as infrastructure providers, are building backbone networks.

In other countries, the calculus may be different. The population or customer density that would justify the building of multiple fiber links in India may not exist in another country. The governments and the regulators elsewhere may place a greater value on avoiding wasteful duplication of resources. On the other hand, even if governments see the waste of duplicate backbone networks, they may not be able to effectively regulate the incumbents and have no alternative but to ask new entrants to build their own networks.

Chapter 8 describes what comes closest to a policy fiasco among the policy and regulatory actions analyzed in this book. With all good intentions, the government of Nepal, its regulatory authority, the World Bank, and assorted consultants set out to provide telecom services in one of the most rugged and beautiful terrains in the world, Eastern Nepal including Sagarmatha (also known as Chomolangma or Mount Everest), home to some of the world's poorest people. For this purpose, they selected a great policy instrument, the least-cost subsidy auction, developed and found effective in Latin America.

But the enterprise faced a series of misfortunes. An auction was held and a winner identified. Then the entire royal family of Nepal was massacred and an unpopular and authoritarian king ascended the throne. The winner of the auction departed, forfeiting a considerable deposit. But the proponents soldiered on. They redesigned the auction, obtained necessary assurances from the government, the regulatory authority and the government-owned, unreformed incumbent to ensure that conditions for a fresh bid.

The auction was held and a winner was selected. He did not run away, but started to build his network in Eastern Nepal, using satellite VSAT (very small aperture terminal) technology. Now the edifice began to collapse. The regulator with the skills and the commitment retired and the project lost a strong internal champion. The incumbent invaded the territory of the entrant in violation of explicit commitments and set termination charges for his network at exorbitant levels that compelled the entrant to charge outrageous retail prices. The new regulator did not intervene effectively and at the right time.

This was not all. The external environment that capsized the first auction rolled again. The king banned all political parties and assumed power. Among other things, he shut down all the telecom networks in the country, allowing them to restart very slowly and under onerous conditions. The new entrant found that most of its identified locations were now prohibited and he was not even allowed to visit some locations where he had installed connections.

The question is, should everyone else have followed the first winner of the auction when he cut and ran. At what point does one give up on a project because a country's governance framework has deteriorated? Should one use least-cost subsidy auctions only in countries with good governance and where promises made are kept? If these stringent criteria cannot be met, what can be done about the unserved and the underserved? Is telecom a dessert that can be enjoyed only after the meal of good governance has been served?

These questions resonate strongly with the debate around e Sri Lanka, a path-breaking ICT development project in Sri Lanka that is sliding from satisfactory to unsatisfactory ranking because of a change in leadership resulting in significant deviations from the original design that refl ected international best practise (Hanna, 2006). The answers to these questions are not in the chapter, but have to be worked out by the reader in active engagement with the material presented in it.

Like the Nepal least-cost subsidy auction, the Indian least-cost subsidy auctions described in Chapter 9 were conducted most transparently, which suggests that good governance is an attainable goal in South Asia. But the design of the Indian auction was such that pretty much all the subsidies ended up with the incumbent. The massive Indian Universal Service Obligation Fund auctions, the Chapter shows, were designed in ways that more or less determined the incumbent being declared the winner.

Infrastructure sharing, interconnection, and other regulatory preconditions that must exist for a truly fair least-cost subsidy auction are identified in Chapter 9. In a gratifying turn of events, the criticisms made of the universal service subsidy disbursements in early drafts of the preceding research report were picked up by the Telecom Regulatory Authority of India (TRAI) and included in its recommendations to the Government of India. However, with many countries getting ready to establish universal service funds, the lessons extracted from India's experience are likely to be of great value, even if it is in terms of learning 'what not to do'.

The discussion of the multiple iterations of the process of designing the ADC regime in India provides an object lesson in protracted and progressive policy deliberation. Under enormous pressure from the incumbent as well as its government 'owners', the TRAI designed and announced a series of ADC regimes that were repeatedly corrected and improved in the face of substantive criticism. It is almost as though the iterative process was needed in order to wear down the resistance of the guardians of the incumbent.

The chapters in this section throw significant light on the regulatory preconditions that have to be met for effective action to extend networks in environments of less than optimal governance. It is not a collection of best practices that are presented for emulation, but rather a series of real-life exercises that will help readers make realistic assessments of actions needed to effectively extend networks under difficult conditions.

References

Hanna, Nagy K. (2006). From envisioning to designing e Sri Lanka: Joining the information services economy, Volume 1. Washington DC: Finance and Private Sector Development Unit, South Asia Region, The World Bank.

LIRNE asia (2005). Telecom use at the bottom of the pyramid. Survey findings.

TRAI (2005). Study Paper on Indicators for Telecom Growth. June 2005.

Document(s) 11 of 21