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N. Ramakrishnan

India has the opportunity to learn not only from the reform process in the US but also in other countries and choose all the good aspects of the reforms in these places.

CHENNAI, Feb. 21

REFORMS in the telecom sector, apart from ensuring competition, should also take care of the financial stability of the telecom companies. This financial stability comes about through clear and transparent regulation that helps the new entrants know where they stand vis-à-vis the established player, according to a telecommunication expert from the US.

Dr Gerald W. Brock, Professor of Telecommunication at the George Washington University, points out while the reform process gives better flexibility to adapt new technology much more rapidly, it also gives rise to financial instability. For instance, in recent times a number of companies have gone bankrupt in the US. However, as long as there are enough companies to pick up those that failed, customers will not be affected.

He told Business Line here that some potential financial instability was a natural part of the move towards a market-oriented system. And, that is why clear regulation is needed to ensure that companies entering the sector know what is in store for them.

India, he said, had the opportunity to learn not only from the reform process in the US but also in other countries and choose all the good aspects of the reforms in these places.

Dr Brock, who was the Chief of the Federal Communications Commission (FCC) Common Carrier Bureau, said that telecommunication was a significantly political sector. It was important for the Governments and for defence purposes, so that ``no country, including the US, leaves the Government entirely out of telecom.''

The reform process in the US had been slow and gradual. Although the US had a private sector telecommunication service, it was quite similar to the Government owned monopoly elsewhere. It was a private sector monopoly; the Government closely controlled it. The reform process was about reducing the monopoly privileges.

Dr Brock, whose projects included working for the US Department of Justice in the suit that led to the divestiture of AT&T, said that in the last 20 years the US had a competitive telecom sector. However, even today companies that came out of the old AT&T still had significant control in their local areas.

On the reform process in India, he said that India had strict financial requirements for licensees to enter new areas. These kind of requirements ensured that under-financed companies did not enter the sector. At the same time, the need for more investment had to be looked into.

The primary objective of the reform process should be to promoting competition even while it took care of financial stability of the sector. ``If you are a monopoly or a duopoly, you care a lot about any company going bankrupt. But if you have a large number of companies, then one company failing is not such a serious problem. We have had many mergers in the smaller long distance service providers. That is not a problem,'' he said.

Therefore, when the regulations were being framed, one way was to be real strict as to who entered the market. The other way was to ensure that a large number of companies came in, so that even if one failed, there was somebody else to provide the service.

Another key requirement of the regulation should be to ensure that sparsely populated areas were also provided with telecom services. For instance, in the US, telecom companies were given subsidies to operate in such sparsely populated areas. These companies were monitored more closely to ensure that they survived. In these sparsely populated regions in the US there was a policy of rough equalising the cost of basic services across the country.

Dr Brock said this worked through a universal service tax, which was computed as a percentage of revenues — roughly eight per cent. The major long distance carriers paid the tax, which went into a fund. The federal government used this fund to subsidise the telecom companies in the sparsely populated regions.

Unlike in India, where telecom companies had to pay the licence fee upfront, the universal service tax was paid out of the monthly earnings of the telecom companies in the US, he said.

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