Cartelisation and its effects on Telecommunication Industry in India
In recent times it has become fashionable to cite telecommunications in India as the preeminent success story of economic liberalization. From a situation where the sector was dominated by the Department of Telecommunications, the sole government operator, in the early 1990s we now have a number of private operators jostling vigorously in mobile telephony, international long distance, internet service provision and other segments of telecommunications.
Abuse of dominant position, mergers and acquisitions and anti-competitive agreements are standard causes of concern of most competition authorities. Most countries also use a regulator for market development and regulation and its concerns are similar to that of a competition authority. The difference is that a sectoral regulator by mandate is more Abuse of dominant position, mergers and acquisitions and anti-competitive agreements are standard causes of concern of most competition authorities. Most countries also use a regulator for market development and regulation and its concerns are similar to that of a competition authority. The difference is that a sectoral regulator by mandate is more
Before the present Competition Act 2002, The Monopolistic Trade Practice Act 1969, was in exercise. The MRTP Act 1969, was enacted in pursuant of a report submitted by “Monopolies Inquiry Commission", which was setup by the Govt. of India to review the economic condition of India with regard to the concentration of the economic power to some private entities and also to examine the affect of the monopolistic and restrictive trade practice in India. With the changing of time it is felt that some change should be done to the MRTP Act, because many new concepts, like globalization, liberalization etc, has been bought, for which India has to change its business policy within and also outside its jurisdiction. So the Competition Act 2002 is come into force.
It is likely that with the growing competition in the telecommunication industry, during the time of liberalisation, privatisation and globalisation, such problems would plague where a single company (network) is ruling monopoly in the nation. It would also have to learn to live with the sectoral regulator who has been around for a while and not get into turf wars.
What is a 'Cartel'
A cartel is an organization created from a formal agreement between a group of producers of a goods and service to regulate supply, or in an effort to regulate or manipulate prices. In other words, a cartel is a collection of otherwise independent businesses or countries that act together as if they were a single producer and thus are able to fix prices for the goods they produce and the services they render without competition.
BREAKING DOWN 'Cartel'
A cartel has less command over an industry than a monopoly — a situation where a single group or company owns all or nearly all of a given product or service's market. Some cartels are formed to influence the price of legally traded goods and services, while others exist in illegal industries, such as drugs. In the United States, virtually all cartels, regardless of their line of business, are illegal by virtue of American anti-trust laws.
Cartelisation in Telecommunication Industry
Telecommunication in India is seen as a resounding success of the policy of liberalization. There is vigorous competition in cellular mobile services and this sector continues to grow at a rapid pace and may soon boast of the world’s largest industry in the not too distant future. Call rates of the phones are gradually being made very affordable, seeing the competence in the market.
The euphoria surrounding the success of telecommunications has to be tempered with the realization that the incumbent state operator still dominates the sector. There is strong competition in the mobile sector and the fact that it growing rapidly and has far eclipsed the fixed-line sector provides some hope for healthy competition in telecommunications as a whole. It is important that the benefits of competition are enjoyed by the other sectors in telecommunications besides cellular mobile.
The TRAI was set up in 1997 to regulate the telecommunications industry. India woke up to the need for private participation in telecommunication in 1994, with its National Telecommunications Policy (NTP 94). At first the private operators were only supposed to supplement the efforts of the DOT and the emphasis was to get them to enter the basic fixed-line segment. NTP 94 made no mention of a regulator. Within three years, however, the regulator had been set up, but with limited powers. Its principle duty was that of tariff regulation and it had no licensing powers. Its other duties included looking after interconnection and settling disputes.
Within the limited powers of the TRAI it has tried to be pro-competitive. Its major achievement was the tariff rebalancing exercise that it carried out soon after it was constituted. In most countries the price of local calls is kept artificially low while the cost of long distance calls are kept high to subsidize the price of local calls. If there was private entry into the local calls market the entrants would not be able to compete with these low prices as they did not have access to long distance markets. Thus prices and rentals of local calls would have to be increased and prices of NLD (National Long distance) and ILD (International Long Distance) calls would have to be decreased.
This is what the, TRAI did in the face of opposition of the DOT (Department of Telecommunication). However, desirable though this move was, it did not trigger entry into the market for fixed services due to the predominant position of the DOT and the unattractiveness of the market.
The challenges being faced by the competition authority in telecommunications are numerous. First is the standard bread and butter issue of enforcement of prohibitions against anti-competitive agreements, abuse of dominance and dealing with mergers and acquisitions. This is made complicated by the dynamic nature of the telecommunications industry. The authority would have to make some investment in personnel and training in telecommunications.
Author: Navin Kumar Jaggi