Friday, May 10, 2013

Configuring a 'Non-Toothless' Regulator (TRAI)

A proposal to give the telecom regulator the right to impose penalties marks a sea change in the government's approach to regulation

Shyam Ponappa  May 9, 2013

On April 27, this newspaper carried a report on the department of telecom's proposed amendments to powers of the regulator in the Telecom Regulatory Authority (Amendment) Bill. These amendments are remarkable, because they are an institutional evolution of the kind that we have rarely experienced, but need much more. Such salutary changes are heartening at a time of perceived drift in governance and stalled decisions. They are also important for our institutional development as examples of change initiated from within for legacy systems.

According to the report, the Telecom Regulatory Authority of India (Trai's) role will be extended to include the power to:
  • impose penalties on operators for non-compliance with its orders and regulations;
  • determine how to address consumer grievances and implement a plan; and
  • recommend how spectrum should be audited for efficient usage, and penalise transgressors for inefficiencies.
In addition, Trai is to be on a par with other independent regulators.

The right to impose penalties reflects a sea change for the better in the government's approach to regulation. It is especially significant because of the difficulties in setting up the regulator years after privatisation began, as well as in the period thereafter. This amendment has the potential to correct many deficiencies, provided it is implemented properly. Good outcomes, however, are not a foregone conclusion because outcomes require a combination of properly designed systems, people with the required skills in place and functioning well in circumstances that are not adverse.

Together with the other changes, namely, addressing consumer grievances and recommending how spectrum should be monitored for optimal usage, with the stipulation of penalties for inefficiencies, Trai will be empowered to facilitate usage and access.

The question is whether these changes sufficiently empower our regulator for our communications needs. The recommendations are good, but do they need improvement? Ideally, what should be the structure, function and powers of the agency in practicable terms, without making the "best" the enemy of the "good"? To formulate answers to these, it is useful to consider relevant benchmarks and markers. Some of the following material is derived from the ICT Regulation Toolkit of the International Telecommunication Union.*

Some countries have a single-sector regulator for telecommunications, as in Botswana, Spain and Peru. Others have multi-sector regulators, with responsibility over utility sectors that typically include telecommunications, water, electricity and transportation, such as in Jamaica, Costa Rica, Germany, Latvia and Panama. More recently, there has been an increase in "converged regulators" with responsibility over broadcasting, telecommunications and information technology. Today, such regulators are found in most European Union countries, including Finland, Italy and the UK, as well as in Australia, Hong Kong, China, Malawi, Malaysia, South Africa and Tanzania. This is because such structures are considered to be better equipped to address convergent environments where different services are offered over the same platform. Such a move also facilitates the transition to modern, packet-switched "Next Generation Networks".

Regulators in several countries, such as the US, the UK, and Malaysia, are the designated authorities responsible for spectrum allocation and management for the government; they do not only make recommendations. Should Trai have such a role and responsibility? To understand why the answer needs to be worked out thoroughly, read on.

Spectrum monitoring and management undoubtedly need modernised capabilities to provide information and decision support. This includes the use of online tools such as user-friendly databases and graphical user interfaces, and public access in areas not related to security or defence. These technological aspects are one dimension of need.

A different dimension is that of institutional readiness and interfaces, and the state of institutional development in counterparty agencies. In other words, it is not simply a matter of elegant logic and organisational design, but also culture and work processes that fit as well as the interrelationships, such as between telecommunications, broadcasting and competition laws, that will ultimately result in effective governance in our context.

What are the desirable qualifications for the head of the regulatory agency? The requirement is for coordinating interdisciplinary issues effectively, in addition to integrity, intellectual capacity, and governance/administrative ability. The first Trai was headed by a judge; thereafter, there was a banker, then people from the Indian Administrative Service. In the US, lawyers head the agency, while in the UK, it is economists; both have very different cultures and institutions from ours. In addition to experience in administration and contracts, knowledge of economics, commercial dealings and coordination using multiple inputs is desirable. Technical expertise, while essential as an input, may not be a key criterion for effective regulation and oversight.

Here are some examples of national anomalies:

  • In Canada, spectrum matters are addressed by Industry Canada rather than by the regulator, the Canadian Radio-television and Telecommunications Commission, or CRTC.
  • In Singapore, the Infocomm Development Authority has responsibility over telecommunications and information technology matters, but the Media Development Authority licenses over-the-air television and regulates content.
  • In Australia, the communications regulator has no authority over competition issues, whereas in the UK, Ofcom has jurisdiction concurrently with the Office of Fair Trading.

For all these reasons, to properly configure Trai's role and powers, a consultative process is advisable (i.e., solutions collectively formulated that are likely to work) with the help of experienced facilitators who can help elicit convergence through stakeholder interactions. Such issues are ill-served by consultations in the form of a quasi-judicial hearing, which is predicated on the "rightness" of a position in the law.

Friday, May 3, 2013

India's Hardware Ambitions

It won't be easy to build domestic computer manufacturing, but the automotive sector provides a good model
Shyam Ponappa  May 2, 2013
Doubts about India's wafer fabrication ambitions were epitomised in a recent New York Times article on India's computer hardware manufacturing ambitions ("India, Long the Home of Outsourcing, Now Wants to Make its Own Chips"; The New York Times' global edition, International Herald Tribune, carried a more pointed title: "Doubts Grow Over India's Computer Ambitions". Despite a false note in the print version mis-stating India's electricity generation capacity, the article underlines the difficulties in such an undertaking in India because of the lack of infrastructure, and questions the efficacy of mandated local sourcing.

Do or die

Does this mean that we should abandon aspirations of wafer fabrication? Or should we concentrate on fixing these problems instead? The New York Times article provides a compelling reason for changing our game from disjointed aspirations and scattershot efforts to focused, goal-oriented, convergent planning and execution: India's electronics import demand, now $70 billion, is projected to quadruple by the end of the decade, exceeding oil imports. If there is no augmentation of domestic hardware capacity, growth will probably be strangulated. The article's warning, that efforts at a high-tech revolution may fail unless India reduces barriers to doing business, is spot on. No amount of traipsing around the globe on roadshows selling India can substitute for correcting this.
Our need, therefore, is to create conditions that are conducive to the development of an ecosystem for hardware manufacturing. One question is whether domestic purchasing mandates ("preferential market access") help or hinder this process.

In contrast to its otherwise downbeat tone, the article mentions the success of automotive manufacturing in India. The question is whether the government can identify the policies that resulted in this success, and succeed in replicating or creating analogous policies as appropriate for computer hardware.

Automotive manufacturing and local sourcing

Maruti Udyog Ltd was the first modern car manufacturer in India, established as a joint venture between the government and Suzuki Motor Corporation in 1981. While production started in 1983 with a group of follow-source suppliers (Japanese manufacturers supplying parts to their client at a different location) and some local manufacturers, it took over a decade for domestic content to reach 85-90 per cent. By 2000, however, new models were aiming for this level of domestic sourcing after one year. This is because the government dismantled some protective mechanisms shielding domestic manufacturers from foreign competition, and introduced a package of investment incentives, domestic manufacturing requirements, export incentives, duty drawback schemes and tariffs in the 1990s. Simultaneously, there was a perceived rise in demand. These factors led transnational manufacturers to invest to meet local demand as well as exports, with a combination of follow-source suppliers together with local manufacturers. Policies to promote local production and sourcing, therefore, contributed significantly to the rise of the automotive sector, although there were other contributory factors.

This experience can be drawn on to promote domestic hardware manufacturing, while limiting the extent to which follow-source suppliers exclude local manufacturers. For instance, in the case of Volvo trucks, international follow-source suppliers dominated local supply, blocking opportunities for domestic suppliers.

An ecosystem for hardware manufacturing

There's no getting away from the need for basic infrastructure. A wafer fabrication unit requires not only its infrastructure for operations, but also across its markets, meaning the whole country, for domestic sales. This means countrywide electricity and other forms of energy (gas, petro-products, coal, and renewables such as solar and wind energy), water and sewerage, roads and other modes of transportation, and communications. In broad terms, our governments (central and states) and society simply have to engage in disciplined, systematic institutional efforts to build infrastructure in an integrated manner, instead of patchwork fixes.

This is not feasible in the short run; even over time, vague aspirations will not do. We need to put in consistent effort for years on phased planning-cum-rigorous-execution on a massive scale. For wafer fabrication, a cluster approach, as for automotive manufacturing, that builds on existing capacity could provide a feasible method - for example, locating the facility near an existing cluster where infrastructure is more readily available, as are people with the requisite skills.

Institutions for systematic development

Evidence of the critical importance of institutions for prosperity was reaffirmed in a study published in 2000, "The Colonial Origins of Comparative Development: An Empirical Investigation", by Daron Acemoglu, Simon Johnson, and James A Robinson.2 This study suggests that in places where colonisers settled, such as Australia, New Zealand, Canada and the US, they tried to replicate European institutions, emphasising private property and checks against government power. In places considered unfavourable for settlement like India, they created exploitative (or "extractive") states and institutions, which persist. The study documents that "settlements were a major determinant of early institutions … that there is a strong correlation between early institutions and institutions today; and finally that current institutions have a first-order effect on current performance". A recent book by two of these authors builds on their findings (Why Nations Fail, Daron Acemoglu and James Robinson).3 It has been written up in two very informative reviews in this newspaper.4 Any responsible policy making or criticism of policies needs to take these ideas into account as contributive factors.

The way to develop infrastructure systematically is through sound institutions, of necessity with finite near-term coverage, gradually extending their scope over time. As mentioned in a previous article, institutional development of communications and requisite energy systems are arguably the most appropriate ways to embark on this process (see "Two sectors to fix", April 4, 2012).

There are no short cuts to building
good institutions. We have to reconfigure our exploitative, post-colonial holdovers, to refashion institutions as competent, fair, collaborative systems. The problem is that predatory elites have to either voluntarily relinquish control or be persuaded to do so in favour of open systems, instead of forcing us to go through escalating chaos, outrage, and, ultimately, a violent upheaval.

                                                                                                              shyam ponappa at gmail dot com