Not clear what super regulator will do: Khullar

Sonia: There are some reports that the communications bill is seeking to repeal old legislations like the Telegraphy Act, the TRAI Act and the Indian Wireless Telegraphy Act and modify some other legislations as well. If this comes through, how beneficial do you think it could be for the sector? A: I am not at all sanguine that these omnibus legislations, which seek to amend six previous Acts legislated as far back as nineteen century will go anywhere. They will be tossed around from one committee to the next and invariably there will be people in the ministry itself who will say let sleeping dogs lie! Why are you rocking the boat? We are managing with telecom sector within the framework of the Telegraphy Aact, why do you want to so drastically change it? Think about it. The Indian Post Act is also one of those 1900 Acts. In the last 10 years, we have gone through two versions. The first version went to Parliament, we had to withdraw it and then the second version has still not seen the light of the day. So one needs to be a little more pragmatic in these matters and while it is certainly important that one should plan for the future in terms of convergence and broadband and what have you, you also have to have your feet on the ground in terms of how the industry will function. The telecom industry is coming out of big mess right now. Do you really want to complicate matters for them? Similarly on the broadcasting side, virtually for five-ten years, nothing has been done and now you have started cleaning up that mess. My gut response as an administrator would be - draft the legislation, do whatever you want, but first don’t muck around with the clean up that we are doing in the two industries. This is far more important that those industries progress successfully rather than building new legal institutional structures under which they are governed.

Latha: Another reform that the Reserve Bank of India (RBI) announced called was Payment Banks. It was largely targeted at telecom companies and you take a lot of interest in matters finance given your previous policy making records in economic related industries. How do you rate this Payments Bank concept and the telecom companies’ likely response to it?

A: People are lining up thinking that they are all going to get banking licenses. Firstly, if they are not getting banking licenses, they are going to get Payment Bank licenses. My own sense is that not all of them are going to get it.

Secondly, a lot more needs to be done towards financial inclusion before you start talking about payment banks. If there are supposed to be 10,000 banking correspondents (BC) in the country, not even 4,000 are in place; there are no brick and mortar banks in place, very large population in the rural areas don’t even have a no-frills account.

So it is a very important development and it came out of the Nachiket Mor committee recommendations. I have had the opportunity to discuss the matter with the governor and as of now, we are both on the same page. The authority has already issued regulations last year enabling linkages between banks and a central clearing house, telecoms to banks and a central clearing house so that simple transactions like checking your balance, transferring from one account to another, making a payment to your son who is sitting in Telangana; all these rudimentary transactions can be done on a cell phone remotely sitting in a village anywhere. That will only take off when the banks first developed the software with which they deal with their clients.

So secondly, they start opening these bank accounts.

Thirdly, they have to have banking correspondents in place. If there are no banking correspondents in place, where is the cash out? It doesn’t matter to me if I am sitting in a village, all this technology doesn’t matter to me if there is no banking correspondent right there who I can say, give me Rs 500 and he will give me Rs 500.

Let us not leap too far ahead. The issue is this, in most jurisdictions, for reasons of financial prudence; it is the banking regulator who has always insisted that it will be a bank-led model not a telecom-led model. This has caused enormous grief to telecom companies. So suddenly, all these guys are again seeing gold dust in their eyes that if you get a payment bank, I will laugh my way to the bank all over again.

I am somewhat circumspect about how easily they will get that license and I am also slightly concerned about the amount and effort they have to see before that gold dust materialises.

Latha: The big story obviously will be telecom spectrum auctions, how much do you think the government can raise and you have indicated -- you have shown a lot of forbearance with respect to the way in which telecom pricing has happened allowing the industry to find its feet after a long lean period, will that forbearance as well continue?

A: One of the first things I did when I came here in 2012 was formally announcing forbearance. Up till that point of time, forbearance was a fact of life but not an announced public policy. It became announced public policy. That is one difference.

Secondly, ever since 2012 I have always maintained that if your headline tariffs are rupee and your actual recoveries are of the rate of 40-45 paisa, till you get anywhere near close to the headline tariff, I don’t see the need for regulatory intervention. Over the last two years, tariffs have gone up approximately by 0.8 to 1 paisa per quarter, which means over a full year about 4-4.5 paisa depending on which company did its tariff plans how. That is a very nominal increase and that doesn’t pinch anybody. If you think about it, if the price of Mother Dairy milk is increased every three months by Rs 2-3, give me one good reason why telecom tariffs cannot be increased by 1 paisa and a quarter. So I think that is the answer to that question.

On spectrum auctions, those are scheduled for February. We have already got a consultation paper out and we are waiting for comments to come in. there will be an open house discussion in Delhi on 22nd and then within three-four weeks, we will send our recommendations. If you have had occasion to read the paper, you will know that the big issues here are not about reserve prices but about the quantum of spectrum or auction and the contiguity of that spectrum.

Sonia: How much do you think the government could actually go ahead and raise through this auction? In the February auction, you have managed to raise more than Rs 61,000 crore. Given the situation currently, what could the ballpark amount be that the government can raise? Also, on the subject of the reserved price, will it be similar to the February auction prices you think?

A: I am not at liberty to tell you what the reserve price will be or what the valuation will be. Please remember that in the February auction of 2014, it was 1,800 that was auctioned and 900 was auctioned only in three circles.

Now you are going to auction 900 in 19 circles. So completely new set of prices have to be determined, which has nothing to do with what was determined for the February 2014 auction. The real problem is on 1,800 megahertz where very little spectrum is currently available for auction. This places telecom operator in a very awkward position because if you don’t win back your 900 and there is not enough 1,800 to buy as a substitute, you are out of business. So that is the do or die type of situation.

Latha: A lot of telecom companies crib about this situation. Elsewhere, I have even heard you speak about how much behind we are in the technology revolution or the digital revolution at least a decade behind the rest as you point out. Do you think that government is now sufficiently convinced that you cannot look at spectrum and telecom as revenue generating machines but as a step to commercial economic development. Do you think that realisation is there and are you agreeable on that theme?

A: My own prediction is that is the way we have to go. Even if we have to auction, we must auction reasonably but as I said publically in a forum week or ten days ago, this bee in our bonnet that all spectrum must be auctioned, this is complete madness.

For instance, microwave access and microwave backbone spectrum is purely supporting infrastructure for the access spectrum. Why do you want to conduct another auction? Why are we not thinking of opening up a widening the Wi-Fi band, currently we have only 2.4-2.485 gigahertz, why cannot it be larger? Thirdly, why cannot you open bands up for testing technologies? In the rest of the world, this is common place where sharing of spectrum and dynamic use of spectrum are not adopted by industry instantly, they are first tested by engineers and scientists on unlicensed spectrum when the technology is validated then it spreads to the industry. But we have got ourselves in such a problem that we don’t even want to contemplate something like that.

So you are absolutely correct that at some stage, this has to dawn on people that you cannot carry on like this because we are going to carry on with the model that CAG, the CVC and the CBI are going to be the prime determinants of development in India then we may as well just back up.

Latha: Is the attitude changing, we have a new government in place, so new beginnings are possible, you don’t notice any such change in perceptions?

A: I have not seen any. The Prime Minister has made public announcements on getting digital India and other such things. The problem is that there is no difficulty with intentions. You need to get this translated into action and that is where the change will come. In terms of spectrum and the way of approaching spectrum, quite honestly, I have seen nobody say anything and therefore, I think that even now Banquo’s ghost is still around.

Sonia: What is your view on consolidation in the sector while the department of telecom (DoT) has released guidelines on mergers and acquisitions (M&A), we haven’t seen any real consolidation in the sector. In fact, India has the largest number of players if you compare it to what is happening worldwide. What is the TRAI’s view on that and do you see a lot more consolidation taking place?

A: The authority’s view and my personal view for a long time has been that we overplayed this competition business. In most jurisdictions, there are at best 2-4 operators. Why India needs 12-13 in each circle God alone knows.

Second, the M&A guidelines that have been issued have not found favour with the industry. So it is like issue a set of guidelines, which are a non-starter and it will not lead to any consolidation and as for spectrum trading and sharing, we have done whatever we had to, we have sent our guidelines back to them. It is now for the government to take a decision one way or the other on how to move on.

Please understand the distinction between the three whereas M&As permit consolidation of the sort of wholesale takeover of individual companies. Trading permits you to buy out or literally strip good assets from bad assets. So you can strip away the spectrum and leave the access network and you can still get ahead.

Sharing is a completely different ballgame because sharing is essentially about enabling huge gains in spectrum efficiencies, which means that with the same quantum of spectrum, howsoever constrained you are, can you use it to increase coverage outreach, reduce drop rate, improve quality of service.

Now, the trading guidelines and the sharing guidelines have been developed in this office and for a very simple reason because if we had merely sent a recommendation to DoT, God alone knows when the guidelines would have seen the light of the day but even now, it is not too late and since these guidelines have been formulated in consultation with the industry, it should be possible for the department to notify them, invite any final comments and then finalise it. M&A is a little trickier. I believe that needs a little more homework to be done.

Latha: I am on your side of the story, let me begin with that point that the media ownership rules are certainly for the benefit of protection of freedom of content; but nevertheless there are commercial considerations. Media companies — whether television or print — have often run themselves into trouble when there are independent owners. So do you think your rules of not allowing concentration of media are flying in the face of reality that if you thwarted ownership, some media would simply go under?

A: I cannot but completely disagree with that point of view. Please understand, the media ownership paper refers to four-five different things. One is horizontal competition to ensure plurality in the relevant market — plurality and diversity. If you are willing to accept restrictions on companies acquiring market share beyond a particular point in the shoe industry, in the biscuit industry, in the cement industry, then why not in the market place for ideas. That is first argument.

The second argument is that look, we knew that this commercial problem would arise. So the way the rules have been framed and unfortunately they are not very well understood, it is only when one person is dominant in both TV and print in the same market, then and then alone problems arise.

If for instance, you are dominant in TV but not in print, you are not affected by the guidelines. If you are dominant in print but not on TV, you are not affected. It is only when you are dominant in both then I have to say take the safeguard measure of ensuring plurality.

The second set of recommendations was about vertical integration and those primarily relate to direct-to-home (DTH), cable. By and large, the DTH operators have responded extremely favourably. There are always one-two people who are hurt. So they will make a noise but I think regulators are not to be conditioned in their responses by one-two individuals in industry.

Third, one of the key components has been disclosure. Disclosure is required under various laws, the Company Law. Always saying implement whatever you need to do and have this disclosure open in public. If you own something, why are you so scared of telling the rest of the world what you own? I think the difficult parts of the media ownership paper relate to practices that have emerged over the last decade — paid news, treaties, self-censorship and erosion of editorial independence.

I think what we are trying to do is two things. One is; we are saying look there is a problem here. We didn’t dream this problem up. We told you about this five years ago, you didn’t listen. Now five years down the road, the problem has become worse and we are not the ones who are saying it, the entire media is saying it. So if you read chapter V, we have extensively quoted the media and not our opinion in the matter. That is something we need to worry about.

Secondly, we need to pause and reflect. If the first citizen of the country, the President of India, says there is a problem, if the Vice President says there is a problem, if a Parliament Standing Committee says there is a problem, are we going to say no, there is no problem.