How TRAI Has Really Damaged Its Own Credibility

The Telecom Regulatory Authority of India (TRAI) was considered to be one of the few sectoral regulators and institutions which had the requisite expertise, as well as a relative openness towards markets. Since the regulator’s establishment in 1997 (after the passing of the TRAI Act), TRAI has been instrumental in providing the right regulatory infrastructure (the light kind) to facilitate the sector’s tremendous growth.

Things started to go downhill in 2014, with the Net Neutrality fracas and the regulator’s bungling up of the entire process to feed the media circus that accompanied the issue. As an editorial in The Financial Express points out, as on 1 June 2016, the regulator has put up four different consultation papers on the issue. Post the third consultation, which was on the issue of differential pricing; it ruled that differential pricing needs to be disallowed because it wasn’t according to the principles of net neutrality. The good fellows at TRAI blissfully state, in the fourth consultation, that there are multiple definitions to Net Neutrality, and its meaning in the Indian context needs to be found.

In effect, TRAI has ruled on the critical subject of differential pricing (including providing an exemption to the intranet from the ruling) by saying such pricing violates Net Neutrality- a concept for which it has no clear meaning!

During the various controversies that accompanied the issue; the regulator, while ruling on the differential pricing issue, didn’t bother to take a major point into account. Its US counterpart, i.e., The Federal Communication Commission’s rules on Net Neutrality were facing an enormous legal challenge, and such rules had previously been struck down by the Supreme Court of the United States. The regulator in the United Kingdom, Ofcom, had ruled against Net Neutrality way back in 2011. Instead of informing the public and the government of all the costs and benefits of Net Neutrality regulation, it hid the costs and overstated the benefits to get favourable media coverage and accolades from the barely informed public.

The least TRAI could do while putting up the fourth consultative paper (where it seems to be coming back to its senses) is to subsume the previous three consultations and the accompanying orders, into the latest consultation. This subsumption will put to rest grave concerns regarding its issue of order, on a subject based on a principle it has no clear definition of. TRAI has not done that.

Coming to the issue of call drops, the great minds in TRAI issued the infamous ‘call drop order’, instituting fines for call drops after a farce of a consultation process. It used poor logic to justify the following order:

...the investment made in the network infrastructure (other than radio spectrum) in wireless access service segment rose by 4.6 percent from Rs. 2,02,366 crore in F.Y. 2012-13 to Rs. 2,11,691 crore in F.Y. 2013-14. During this period, the minutes of usage grew by 6.8 percent. Clearly, investment has not kept pace with the usage. Thus, prima facie, it appears that lack of investment in network infrastructure by the wireless access providers may be one of the main reasons for the problem of call drops....(TRAI Consultative Paper on Call drops)

The great minds of TRAI believe that investment growth will exactly correspond to growth in minutes of usage! The long-term investment plans have no role, as telcos need to invest in a way TRAI thinks optimal! One wonders from which well of wisdom do these bureaucrats find such gems of reasoning.

At the same time, they cleverly hid the fact that the Government of India took in vast sums; nearly Rs 22,000 crore by way of license/spectrum usage fees every year, Rs 109,000 crore in the March 2015 auction, Rs 61,000 crore in the February 2014 auction and Rs 106,000 crore in the June 2010 auction. This was from telcos by successive auctions before, during and after the aforementioned period. Telcos had either spent a lot in the previous auction or were saving up for the next one. TRAI ignored all this.

When they did issue the order, there was no explanation as to where the numbers, i.e., one rupee fine per call drop with a limit of three rupees per day, came from. This author believes that it came straight out of the TRAI Chairman’s hat. The farce didn’t just stop there. After the 16 October 2015 order had been challenged in the courts by the telcos, TRAI put out a technical paper to ascertain the reasons for call drops. Here is what the paper had to say in the conclusion section:

‘.....it must be realised that mobile towers do not have an unlimited capacity for handling the current network load. There is an urgent need to increase the number of the towers so as to cater to the demands of a growing subscriber base. At the same time, problems like the removal of towers from certain areas by Authorities should be adequately addressed. This problem is particularly evident in urban areas. Moreover, with the increase in the usage of 3G networks, the growth rate of mobile towers supporting 2G networks has reduced. This must be addressed.’

(A thorough examination of the Technical Paper revealed that the recent auction of spectrum, which was allocated 20 years ago, led to telcos landing up with spectrum of different frequencies and sometimes in different bands. The need to optimise the networks arose. This optimisation would take some time and, in the meantime, consumers would have to bear higher than usual call drops).

Here is what the Supreme Court had to say about the paper: 


Prima facie, it appears that your technical paper says that telecom companies are not responsible for call drops’. If even the interventionist Supreme Court thinks that there is no case for regulatory intervention, it becomes apparent that something is seriously wrong with the regulator’s case. On 11 May 2016, the Supreme Court rightly struck down TRAI’s call drop order as ‘ultra vires, arbitrary, unreasonable and non-transparent.

On 8 June 2016, TRAI dropped a bombshell by asking the Government of India to amend Section 29 of the TRAI Act and to substitute it with this:

If a person violates direction of the authority, such personnel shall be punishable with imprisonment for a term which may be extended to two years and shall be liable to fine which may be extended to Rs 15 lakh.

Presently, Section 29 only enables TRAI to fine offenders Rs one lakh for the first offence, Rs two lakh for subsequent crimes and an additional penalty of Rs two lakh for every day of default on fines. The proposed increase in monetary penalty is reasonable, according to Indian standards. The power to imprison isn’t. It is not only unreasonable but also dangerous. It is a case of the school bully running to his mommy when the principal gave him a lashing due to a victim’s complaint.

Make no mistake about the impact of the amendment proposed by TRAI. If the government ever agrees to it, telecom companies will be forced to fork up huge amounts of money to local government officials (unofficially, of course) so that all the necessary approvals are given for installing the requisite telecom infrastructure. Some players may even pack up and get out of certain circles if they find their operation in those circles to be financially unviable. This will lead to tariff increases as those competitors, who are left in the market, gain pricing power and telcos will need to recover the higher costs of operation. All these costs will ultimately be borne by the hapless consumer.

It is important to note that the Secretary of the Department of Telecommunications J.S. Deepak has said that, in his ‘opinion’, such penal powers are not needed. The government is yet to take a stand on TRAI’s request. Hopefully, the government will refuse but given that the minister is Ravi Shanker Prasad, I’m not sure.

Update: Minister Ravi Shanker Prasad has said NO to TRAI’s demand for penal powers.