The Badge Of The Prefect

One of the more interesting fallouts of the ongoing debate on Star TV holdings and cas has been the demand for an independent regulator for the Rs 15,000-crore-and-growing broadcast industry. The demand is natural and in tune with most countries where the sector is liberalised. Unfortunately, India's controversy-ridden experience with its regulatory bodies, right from SEBI to TRAI, prompts the cassandras to see red. Another so-called independent regulator, another protected perch for a retired babu—when is the government really out of such authorities, they ask?

For instance, why do we need a broadcast regulator when, apart from the ministry, there's Prasar Bharati Corporation? Then, the Communication Bill 2001 spoke of a common authority for telecom, broadcast and infotech on the lines of the Federal Communications Commission in the US and Canada (which may have got grounded because it dreamt so big and poached on many turfs). "The time is right for a (broadcast) regulator to step in since the government has already moved ahead in policy and created a critical mass," says Amit Mitra, secretary general, FICCI. The move for such a regulator is as old as 1997. "If we include programming, cross-media holdings etc, it will become too big. After the regulator comes in, the ministry's role will be restricted to policy matters alone," says an I&B ministry official.

But why do we need regulators despite the ministries, departments? Because regulation is just the other side of reforms. As state-controlled sectors get deregulated, there is need for an impartial body to fix ground rules, manage the traffic for participants since the government may be perceived to be partial to its own organisations that have been a monopoly service provider/goods supplier so far.

However, it takes a long time to achieve real independence (which is the developed West's experience too). For instance, BSNL's continued edge in telecom despite TRAI, NTPC's frequent skirmishes with the CERC or IRDA's silence on LIC's high-yield Varistha Pension scheme can be compared to the US Federal Communication Commission's long fight, along with the department of justice, to end the monopoly of AT&T. So, lobbyists can infect even a hitherto unregulated sector.

As a result, regulators remain everybody's favourite punching bag. More so in India, where most of these start with recommendatory powers and have to contend with frequent government interference. Insurance, power, telecom, even the brand-new Competition Commission, are all headed by retired bureaucrats, the only exception being latest SEBI chief, G.N. Bajpai, who started life as an LIC employee. And that's the way it may be for some time, even though there's a panel stuffed with outside experts that oversees these appointments—the ias, after all, is the country's most powerful trade union.

This is one of the main reasons why regulators leave a bad taste. The other is the often smudged boundaries of authority and persistence of government monopoly in some way in every sector. There's also no uniformity among the regulators. SEBI remained a figurehead for long, with the power to make rules only (but not command implementation). While the Central Electricity Regulatory Commission (CERC) has quasi-judicial powers plus the mandate to regulate bulk tariffs, fix inter-state transmission tariffs and issue licences for transmission and trading, the Telecom Regulatory Authority of India (TRAI) is more of a dispute settlement body with no power to issue or cancel licences.

As a result, in power at least, says CERC chairman and ex-power secretary Ashok Basu, "There is hardly any interference, the shift from government is more or less complete in the five years of our existence. Also, unlike telecom, power is a concurrent subject, so the process has to be transparent.All our orders are on the Net, nobody can come to us unprepared. But the job is more complex because of the sheer number of consumers, conflicting goals: we've to protect consumer interests, promote competition and efficiency, raise resources and cut subsidy, all at the same time."

Agrees Tata Energy Research Institute (TERI) director A.R. Sihag: "Power regulators are doing a tough job considering they're pressured on the one hand by the financial unviability of the boards—which also reduces their degree of freedom—and on the other hand by the lack of a hard budget constraint on the part of the players. They also have an information base problem—there's no fix yet on the amount of power distributed or generated because of 40 per cent leakage. Unless and until state governments clean up, this uncertainty will continue."

With similar powers as the CERC, even the Insurance Regulation and Development Authority (IRDA) has been lapped up favourably by the industry. cii's Omkar Goswami rates IRDA's performance under N. Rangachary (who retired in June) at 9/10 and hopes that successor C.S. Rao lives up to the reputation. In fact, IRDA's success has won it the label of being pro-private, something that Rao may retain since he's likely to bring back the 5 per cent discount for direct insurance deals for corporates scrapped by Rangachary. But there are quite a few reasons for IRDA's popularity. The first is its resistance to LIC's fixed return schemes and high fixed yields. Secondly, it allowed private players to settle down before coming down on them with unreasonable commitments, like a share of the rural business.

Private insurers are also happy that IRDA reduced the membership fee from 0.2 per cent to 0.1 per cent of gross premium. This, experts feel, was done after the finance ministry laid claim to some of its funds. "How you look at the issue depends on which hat you're wearing. IRDA has been practical in its approach and not just followed the book," says Rohit Bhasin, executive director at PricewaterhouseCoopers.

However, private insurers are also critical of the IRDA. They say it has conveniently favoured LIC by capping agents' commissions at 'low levels'. They also cite the controversial decision by the IRDA to allocate a Rs 50-crore ad budget entirely to Doordarshan, the state-owned TV channel. "The kitty should have been distributed among the various channels," says a senior manager in a large insurance firm. What he means is that DD's viewership is high in rural areas, and the exercise will end up helping state-owned insurance firms since the private ones have little presence in the villages.

On top of that is IRDA's inability to do something about the 9 per cent senior citizen's pension scheme. But, according to Goswami, "That's an instance of bad law (in this case, the LIC Act), and not bad regulation". Still, a crucial reason for the relative success of IRDA (and a regulator in broadcasting can take a leaf out of this book) is that the framework was put in place alongside the actual privatisation of the industry. Rangachary was the man at the helm of the interim body from 1996-2000, after which he became the first chairman of IRDA.

That's been a plus point for the CERC too. Its first chairman, S.L. Rao, although frustrated by the lack of effectiveness, managed to lay down ground rules and helped set up the state commissions. With the late dawning of the knowledge that distribution had to be privatised first since the power boards, the actual buyers, would take some time to be viable, there was some hiatus in policy-making too. Now, with the Electricity Act passed, the sector is ripe to take advantage of the framework and further deregulation like open access—where both discoms and ultimately consumers will be able to buy power from whichever quarters they want.

Unfortunately, the lack of a gradual evolution was a handicap for TRAI from the very beginning, so much so that the first chairman, Justice S.S. Sodhi, succumbed to turf battles. Although telecom liberalisation began as early as 1992, TRAI came into being only in '97, that too with little enforcing rights. As a result, a majority of its decisions have been challenged by telecom players. Contrast this with fcc in the US and Oftel in the UK who can cancel a licence if an operator ignores its ruling.

That apart, cellular service providers, who have been fighting a losing battle to stop limited mobility services based on Wireless in Local Loop (WLL) technology over the last few years, feel that in all its three regimes over six years, the TRAI has been far from fair; that it has not only worked in the interest of certain players but was also manipulated by current political interests. Interestingly, WLL-M (mobile) operators feel that instead of regulating the sector, TRAI has gone into a dispute settlement mode, which is not its only duty. Says a Reliance Infocomm official: "TRAI is just trying to address the disease by looking at the symptoms. It is not going into the legality of the disputes."

Siddharth Ray, MD of ILD operator data Access, feels that TRAI has totally failed in both preventing the state-owned operator's monopoly as well as in incumbent management. Otherwise, he asks, how could call tariffs fall from over Rs 5 to around Rs 1.20 in just three months without the authority having anything to do with it? Again, the reasons the industry attributes for TRAI's failures are linked to the basic problems with regulation in India. One, the absence of industry and proper technical representation in the authority, manned as it is by ex-DoT and BSNL officials (and now headed by Pradeep Baijal, who came from the disinvestment ministry). Two, the faulty policy framework which itself leads to inconsistencies and inequalities. The fragmentation of the country into several circles and licences is a case in point. Says TERI's Sihag: "Telecom is hamstrung by two legacy issues. First, the necessity to deal with a dominant player (BSNL) as well as foster competition. Second, the multiplicity of licences instead of a unified licensing system which has reduced it to a mere dispute settlement body."

The third handicap is the most important issue of funding, which has affected all the regulators. CERC works on budget allocation and seeks fees from regulated entities for independence. Rangachary had locked horns with the finance ministry for retaining the funds IRDA collected—about Rs 200 crore or so according to Rao—while the latter wanted it to go to the public account. But TRAI is dependent on the ministry for its funds. Ray feels licence fees should be used to fund TRAI, a proposal that originally came from Justice Sodhi. Instead of the ministry, he had suggested 0.18 per cent of the revenues of the telecom companies be used to fund TRAI, which would give it the freedom to act impartially. Says T.V. Ramachandran, director general, Cellular Operators Association of India: "As long as TRAI is tied to the purse strings of the ministry, you can't go against the government."

In such a backdrop, what's the future of the new broadcast regulator? Especially since Prasar Bharati will continue to look after air and DD? Says Mitra: "The challenge lies here and we must look at regulation as an evolutionary process—the start has to be made somewhere." For instance, he says, the BBC does not come under the ambit of the Independent Broadcast Authority (IBA) of the UK which looks at licensing, uplinking laws as well as content for both private satellite and terrestrial channels.

In fact, some of the disputes dealt with by the regulators would also have been fodder for the new Competition Commission which will start with "competition advocacy" in September before it can get anywhere (since the mrtpc will also continue), according to its new chairman Vinod Dhall. But till such time as the government can truly get out—in letter and spirit—of running businesses it has no business running, regulation in India will continue to be a case of lots of hiccups.