Techno-Sociological Needs of the Nation - Essay Example

? Essay on Regulatory Theory Essay on Regulatory Theory Many owned telecom units were privatized during last 10-20 years and the sector was setfree in most part of the world when it was necessary in view of the advancement in science and technology. Since then as a natural consequence, the telecommunication sector throughout the world has undergone a major change in its structure from the erstwhile monopolistic regime to the one made of competitive forces. Due to convergence of the information and communication technologies into a common delivery model, states were forced to undertake a review of existing legislations and create a new set of guide lines not only to attract private investments but also to meet techno sociological needs of the nation. The first waves of reforms were introduced in 1990s until then telecommunications services were provided by the government under monopoly regime. Private players were allowed to enter the sector when they brought with them the mobile telephony, VoIP, broadband internet and many other value added services. This necessitated the new regulatory frame work to allow the smooth working of these operators in the marketplace. ICT technology is evolving rapidly and the world has become a global village where voice communication and transfer of data takes place at a wink of eye. Analog technologies have got replaced with more efficient digital signals and data storage. ICT networks are now currently relying more on packet switching instead of analog based circuit switching. The shift in technologies has certain implications for regulators and network operators. It will be appropriate to identify how operators are affected with these technological changes. 1. Owing to change in technologies, Network operators have to overhaul existing setup and install new equipments. This necessitates a significant capital outlay for new infrastructure. 2. Development of the Internet and digitalization of the technology has given users a greater flexibility and control over networks to use the services they require; however, operators have less control over how consumers interact with networks and utilize the services in voice and data segments. 3. The governments of the countries allocate spectrum, and often specify how the portion of the spectrum is to be used. Operators are regulated in designing their tariffs, uses and services to their customers. These decisions affect the flexibility of spectrum in providing ICT services. The historical allocations of spectrum limit the scope for service providers to offer new innovative wireless services. Mobile internet access requires more spectrum than previously made available to the operators. Competitive market is said to be efficient and self corrective when numerous player vie for a given cake. The advantage is that competition helps achieve optimum use of resources and indulges in self correcting as per the demand of the market. Rationale for an Effective Regulator Even in a Competitive Market An effective regulatory body is required to regulate the market players which checks unfair market practices, protects consumer interest and ensures optimum use of resources in national interests. This is in the same fashion as The Bank of England regulates some of the important monetary functions such as money supply, interest rate, repo and reverse repo rate, and private banks are free to formulate their own strategies and compete within the given guidelines as per the regulatory framework enacted by the central bank. Owing to the nature of ICT technology and a host of evolving new technologies, it becomes necessary to ensure fair allocation and the optimum use of spectrum in the larger interest of nation. This also requires having a regulatory body in place to chalk out various policies, procedures, and rules which creates a healthy and competitive environment ensuring the following: 1. Allocation and management of scarce resources in the national interest. 2. Oversees the smooth expansion of ICT networks and services. 3. Creates an environment that leads to healthy competition. 4. Protects consumer interests including privacy and security. The rationale for establishing regulatory institution is to provide non-discriminatory treatment to all players in the liberalized market. It further ensures transparent environment with smooth functioning that attracts sustainable investment necessary to satisfy the existing and future demand. In the long run, it stimulates investor confidence reducing regulatory risk. (Rationale for…) Indian Case Study: Pre Competition to Post Competition Era It is worthwhile to take a note of the some of the remarkable happenings that took place in India when sector was set free in 1997 that transformed the ICT sector of the country. Bharat Sanchar Nigam Ltd (BSNL) was a state entity who had monopolized operations since its inception until formation of Telecom Regulatory Authority of India (TRAI). BSNL operated as a state unit providing basic telephony throughout the country. There was no competition before 1997 and people had no choice but to subscribe the telephone connections with BSNL only. Post 1997, ICT sector started developing by leaps and bounds. Tele-density which grew only by 1.92% in 50 years between 1948 and 1998 increased by 18% during the 10 year tenure of TRAI's existence. Telecom tariffs are no longer regulated and have fallen considerably. In some tariff plans, long distance calls cost as little as 2 pence a minute or to put it in right perspective, long distance calls, international calls and local calls have fallen more than 90 percent of the previous tariff applied before 1997. Foreign direct investment in ICT sector went up by more than 500 percent between the year 1997 and 2007. The impact of India’s regulatory reforms between 1997 and 2007 is noteworthy in the sense that there was a phenomenal rise in both the categories of wireline and wireless subscribers base. This was achieved in the regime of Telecommunication Regulatory Authority of India (TRAI) which started its regulatory functions in the year 1997. Some of the data as tabulated hereunder show the impact made after TRAI issued various guidelines for the privatization of ICT sector. (Telecom Regulatory Authority of India 2007) Item 1997 2007 Wireline Subscribers (in Milliions) 14.54 40.75 Wireless Subscribers (in Milliions) 0.34 165.11 Teledensity (%) 1.56 18.23 Internet subscribers (in Milliions) 0.09 40.57 Source: Telecom Regulatory Authority of India, Link: http://www.trai.gov.in/achievment.pdf Source: Telecom Regulatory Authority of India, Link: http://www.trai.gov.in/achievment.pdf Regulators are required to be responsive to the issues that arise due to advancement and implementation of new technologies and one of the most pertinent factors in today's market place is that of multiple services being offered by the same platform. The effective and efficient regulatory framework is also necessary from the view point of investors who consider a regulatory environment a necessity in their decision for the purpose of investing in a country. Why State Regulations Baldwin and Cave has defined state regulations as “The force of law is used to prohibit certain forms of conduct or to demand some positive actions or to lay down conditions for entry into a sector.” (Baldwin and Cave, p 35) State formulated regulations are known to have three characteristics. • It aims at changing the nature of regulated bodies, by detailing what they should or should not do, either through licensing or through legislation. • Regulatory body check their non-compliance through inspection and/or monitoring • In the event that regulations are not complied with, it resorts to punitive sanctions (such as fines). State formulated body establishes rules and principles, determine monitoring methods and provide for the incentives on compliance. Licensing is required in ICT sector due to the nature of the industry. Limited spectrum availability and its proper allocation create a need for a regulatory body, which can deal with all aspects for the healthy growth of ICT sector. In many countries, the regulatory body is created by the parliament enacting the necessary law that empowers it full authority on developing rules and regulations, to check unfair practices, and to protect consumer interests. Advantages in Competitive Regime with Regulatory Body in Place Competition albeit with regulatory body offers the following advantages 1. It provides certainty on implementation part to achieve larger objective 2. Since it carries the force of law there are least chances of any deviation 3. It establishes certain minimum standards of operational behaviour and 4. It provides the possibility of public scrutiny. (Baldwin and Cave) ECTA Study In 2005, ECTA published a report demonstrating how well in 16 European countries the investment was promoted through effective performance of the National Regulatory Authorities in that country. It took into consideration four factors: 1. General NRA powers 2. Effectiveness of the dispute settlement body 3. Availability of key access products and 4. General market access conditions A maximum total score of 518 points were allotted with varying weightings applied to these four principal criteria. (Dorward, Lynne; Peters, Hal 2009) The survey conducted in this regard demonstrates that effective regulation continues to impart a positive impact on investment levels in ICT technologies. The study concluded that higher effectiveness of the regulator leads to higher investment. Source: ECTA 2005 Regulatory Scorecard Disadvantages 1. Regulatory bodies are often inflexible and unresponsive to changes 2. Complexity of rules deter players to enter into the sector 3. Often compliance costs are high and thus enforcement becomes costly 4. It may act as a barrier for new players to enter into the market. Besides, state regulatory body often carries the risk of “the pursuit of the regulated enterprises’ interests rather than those of the public at large” (Baldwin and Cave, p 36). The case of Ofcom can be quoted in this regard when they continued with the price restrictions on British Telecom even after 25 years of their privatization safeguarding other telecom players; however, in the process they worked against the interests of common consumers having denied them the lower price offerings from British Telecom. In September, 2009, Ofcom, a British regulatory and competition authority for communication industries, relaxed its restrictions on British Telecom permitting discounts on the prices of services they offer to the consumers. Previously, British Telecom was unable to offer reduced prices to customers who used to take more than one service though they wished so. They were supposed to sell deals at a price equal to the sum of their parts. Ofcom relaxed its constraints after having realized that BT no longer has significant control in the landline market. The report from Ofcom states, “In September 2009, we were able to remove one of the last pieces of retail regulation in the fixed-line telephone market." (Principles for...) The more complex the services are, the greater the number of rules required and that causes “over-regulation, legalism, delay, intrusion on managerial freedoms, and the strangling of competition and enterprise”. (Baldwin and Cave, p 37) The point is that with so many technologies, delivery models, and hosts of features involved in the various product lines of ICT sector, regulatory body sometimes may work as a hindrance in facilitating and promoting the quality services. Deregulatory Environment It is stated that when competition sets in and the market is fully efficient then there is no need of any regulation. Market corrects itself in a totally free environment and adjusts itself when buyer and sellers are free to make their own decisions based on the information available to them; however, it should be noted that total deregulatory environment, if not handled properly, can have disastrous consequences for consumers. The glaring example is blackout problems occurred in 2001 in California due to failure to install sufficient generation capacity after deregulation in 1996. Richard Greene, a reporter from BBC news service in 2001, then reports about California blackouts, “The problems stem from an ambitious - but poorly executed - plan to deregulate the energy industry.” (Greene, Richard 2001) Conclusion Price sensitive markets have more chances of failure in a totally deregulated environment as have been seen in the electricity generation and distribution market at many places not only in the US but also many places of world. The total deregulation is found to be successful when supply surpasses the demand substantially. ICT segment has a long way to go for total deregulation for the simple reason that there is still a lot of untapped market and huge demand is still to be met with. A present competitive setting under the state regulation is going to serve better in the existing environment at most of the places and likely to last for several years. References: 1. Baldwin, Rob; Cave, Martin. Understanding Regulation, 1999. P.35, 37, 39 and chapter 4. 2. Rationale for an Effective and Independent Regulator Online from http://www.ictregulationtoolkit.org/en/section.3106.html [Accessed on 3/8/2011] 3. Dorward, Lynne; Peters, Hal (2009) Online from http://www.itu.int/ITUD/treg/Events/Seminars/GSR/GSR09/doc/GSR09_Regulation- Investment_Dorward.pdf [Accessed on 3/8/2011] P.5 4. Telecom Regulatory Authority of India (2007) Online from http://www.trai.gov.in/achievment.pdf [Accessed on 3/8/2011] P.1 5. Principles for Economic Regulation Online from http://stakeholders.ofcom.org.uk/binaries/consultations/756461/principles-for-economic-reg.pdf [Accessed on 3/8/2011] P.3 6. Greene, Richard A (2001). California blackout. Online from http://news.bbc.co.uk/2/hi/americas/1123665.stm [Accessed on 3/8/2011] Read More