India Infrastructure Report

A Review of Telecom Regulatory Authority of India’s Tariff and Interconnection Regulation 239

A REVIEW OF TELECOM REGULATORY AUTHORITY OF INDIA’S TARIFF AND INTERCONNECTION REGULATION

Rekha Jain

Tariff rebalancing and interconnection regulation plays a critical role in reforming the telecom sector, characterized by rapid technological changes and monopoly service provision by the incumbent. Due to rapid advances in technology, the prices of long distance communication have fallen more dramatically and incomparably more than that of the wire line local access. Further, competition in the long distance segment has resulted in a sharp decline in prices, almost bringing them near costs. However, the decline in long distance prices may not be accompanied by costbased local access rates. They may have been historically kept low due to political reasons. The below cost rentals and call charges may not invite private participation. On the other hand, it may not be possible to have above cost long distance charges (usually used to subsidize the below cost rentals and local call charges) in a competitive environment. Tariff regulation to rebalance these by increasing local call charges as a means to encourage private entry and corresponding reduction in long distance charges creates the appropriate incentives for investment. Tariff rebalancing as a regulatory tool can ensure adequate incentives to the incumbents for the transition to a competitive environment by specifying the road map and protecting its revenues.

interconnection to the new entrant. With the deregulation of the Indian telecommunications sector and the move from monopoly to duopoly and finally to oligopoly in the telecom sector, the choice for the end user has increased. However, this has also placed demands on the regulator to ensure implementation of policies for efficient operation of the sector with interconnection as one of the critical issues in enhancing competition. One of the most...