Why Regulate Telecom?

V. Sridhar
Sridhar, V. (2019). Emerging ICT Polices and Regulations: Roadmap to Digital Economies. Chapter 1: Why regulate the ICT sector?
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 Need for Regulation
To protect Consumer Interests

• In the areas of pricing, quality of service and non-discriminated

service offerings

To foster effective competition

• Reduce barriers to entry and exit; prevent anti-competitive

behavior including predatory pricing and collusion; to reduce
market failures

To provide universal service

• To provide equitable services across geographies, gender,

demographics, and societies

To promote technologies and innovation

• To encourage innovation and promotion of new technologies

and their adoption in the industry and society
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 Telecom Sector: In transition

What about the Internet Sector? In particular, Digital Platforms?

Source: infodev, 2010
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When should you regulate?

● As and when the market develops?

● Or when Monopoly or Oligopoly sets in?
○ How to measure market dominance?
○ How to detect market abuse?
■ To thwart competition
■ To harm consumers

● How to promote innovation and entrepreneurship?

○ Stringent regulations -> kills innovation and start-ups
○ When to invoke regulation?

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What to Regulate?

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 Taxonomy of what to regulate?
One
Competition
Level
Few

Antitrust
Alliances and
Partnerships
Net Neutrality

What to Regulate? Forbearance

Price Ceiling
Regulate
Floor
Universal Subsidize Rural
Access Services
Technology
Interconnection
Commercial

Allocation
Scarce
Radio Spectrum
Resource
Pricing
Privacy and
Data Protection
Content Moderation?
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How to Regulate?

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Type of Regulation: Ex Ante Regulation

● Ex ante regulation is anticipatory intervention

● Ex ante regulation uses government-specified controls
● to:
○ Prevent socially undesirable actions or outcomes in markets, or
○ Direct market activity towards socially desirable ends.
● Ex ante regulation is mainly concerned with market structure, i.e.
○ the number of firms and level of market concentration, entry
conditions, and the
○ degree of product differentiation.

● Ex ante regulation often takes the form of sector specific regulation.

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Type of Regulation: Ex post Regulation

● Ex post regulation addresses specific allegations of anti-

competitive behavior or market abuse.
● Ex post regulation aims to redress proven misconduct through a
range of enforcement options including fines, injunctions, or
bans.
● Ex post regulation is mainly concerned with market conduct — the
behavior of a firm with respect to
○ both its competitors and its customers.

● Ex post regulation often takes the form of competition laws.

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Regulatory Organization and Processes

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 India’s Regulatory Structure
Digital
Communications
Commission
Department of
Telecommunications
Wireless Planning &
Coordination
Prime Minister’s Office

Telecom Regulatory
Ministry of
Authority of India
Communication
(TRAI)

Ministry of Electronics Telecom Dispute and

& Cabinet

and Information Settlement Appellate

Technology Tribunal

Ministry of Information
& Broadcasting

Ministry of Corporate Competition

Affaires Commission of India

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 India’s Regulatory Structure

Telecom and
FCC
Internet Regulation
U.S.
Competition
FTC
Watchdog
Organizations
Regulatory

BEREC
European
EU
Commission
National
Regulators
Singapore IDA

..

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 India’s Policy Regime
Indian Telegraph Act 1885

NTP 1994

NTP 1999
Telecommunications
NTP 2012

National Digital Communications

Policy 2018

Indian Telecommunications Act

2023
Major Acts and

Information Technology (IT) Act

2000
Policies

IT Act Amendment 2008

Information Technology
IT Act Intermediary Rules and
Media Ethics Code 2021

Digital India Act 2023

Digital Personal Data Protection

Privacy and Data Protection
Act 2023

Competition Act 2002

Competition

HSS 110 3/13/2024 Digital Competition Act 2024(?)

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Licensing Telecommunication Services:
A way to regulate

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Licensing Objective

● Regulating Provisioning of an essential public service

○ Emergency service (911, E-911 service in the US)

● Expansion of networks and services

○ Rural area coverage

● Regulating market structure

○ Determining network operators allowing for efficient supply of
telecom services
○ Allocation of scarce resources
○ Establishing a competition framework
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Existing Licensing Structure in Telecom

What about Digital Platforms? Are they licensed?

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 Methodology of License Assignment

Single Stage
Sealed Bid
Lottery Multi-stage
License Assignment

Sealed Bid
Auction
Beauty Parade
SMRA

Fee Based
Incentive
Authorization
for Service First Come
Fixed Fee
First Serve
Registration

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 Dr. V. Sridhar
Professor, IIIT-B
[email protected]
www.vsridhar.info
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 Share of Landline Subscriptions in the U.S.

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 India: Landline and Mobile Subscriptions

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 India: Share of landline business

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VoLTE: Change from Circuit Switching to Packet Switching

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 VoWiFi to the rescue!

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 Public Call Offices and Public Telephones

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Monopoly Market

● While a competitive firm is a price taker, a monopoly

firm is a price maker
● A firm is considered a monopoly if . . .
○ it is the sole seller of its product.
○ its product does not have close substitutes.

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WHY MONOPOLIES ARISE

● The fundamental cause of monopoly is barriers to entry

● Barriers to entry have three sources:
○ Ownership of a key resource.
○ The government gives a single firm the exclusive right to produce
some good.
○ Costs of production make a single producer more efficient than a
large number of producers.

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Natural Monopolies

● An industry is a natural monopoly when a single firm can

supply a good or service to an entire market at a smaller
cost than could two or more firms
● A natural monopoly arises when there are economies of
scale over the relevant range of output.

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A Monopoly’s Revenue

● A Monopoly’s Marginal Revenue

○ A monopolist’s marginal revenue is always less than the price of its
good.
■ The demand curve is downward sloping.
■ When a monopoly drops the price to sell one more unit, the
revenue received from previously sold units also decreases
○ When a monopoly increases the amount it sells, it has two effects on
total revenue (P  Q).
■ The output effect—more output is sold, so Q is higher.
■ The price effect—price falls, so P is lower.
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 The Monopolist’s Profit

Costs and
Revenue

Marginal cost

Monopoly E B
price

Monopoly Average total cost

profit

Average
total D C
cost
Demand

Marginal revenue

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Copyright © 2004 South-Western
 Economies of Scale as a Cause of Monopoly

Cost

Average
total
cost

0 Quantity of Output
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Copyright © 2004 South-Western
 Landline (Basic) Services

● Historically, basic telecom services was considered as

“natural monopoly”
○ huge fixed and sunk cost associated with the investment on
the local loop; low marginal cost
○ duplication of local loop is not possible and economically
justifiable
● Economies of scale holds good
○ decreasing average cost curve
○ Cost per user decreases with size of the network
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Ways to Regulate Natural Monopolies

● Price Regulation: Fixing Ceiling Price

● State monopolies: BSNL
● Competition Regulation
○ Introduce competition
○ Keep State Owned Enterprises
○ Use Universal Service Funds to subsidize

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Contrasting Regulation in U.S. and India

● U.S. (1994)
○ Monopoly private operator (AT&T)
○ Landline density -> close to 100%
○ Introduce Competitive Local Access Carriers (CLECs)
○ Local Loop Unbundling

● India (1994)
○ Government providing service (DoT)
○ Landline density -> < 2%
○ Introduce competition

● Results??
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Discussion Paper

● Chapter 13: Future of Telecommunications Policy. In

Nuechterlein, J., & Weiser, P. (2005). Digital
crossroads. American Telecommunications Policy in the
Internet Age, Cambridge (MA), 407-429.

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