The Hindu Business Line : Energies of competition

There are at least two ways in which governments can contrive a reduction in the price of goods and services. It could, of course, by fiat effect a reduction. But then it is obliged to compensate the producer for the implicit losses by absorbing the same in the Budget. Prices of grain sold through the public distribution are set in this manner; so are those of kerosene and LPG. That it often ends up compensating the producer neither adequately or expeditiously with serious financial consequences as in the case of the public sector oil companies is another unfortunate dimension of the problem. The other way is to set up and nurture vibrant competition among producers in the sector and let their energies work to press prices down.

This is how things have worked out in the telecom sector ever since the monopoly of the Department of Telecommunications gave way to keen competition among up to half a dozen service providers in each State. Tariffs on domestic long-distance calls have fallen, even as much as by 90 per cent in some cases, to among the lowest in the world. Yet, most service providers remain profitable and, significantly, the public sector entities have, far from fading out, distinguished themselves by employing some daring strategic initiatives. New technology has been a notable ally in this cost-slashing effort, but the driver has undoubtedly been the fiery competitive environment. Mahanagar Telephone Nigam Limited's decision this week to reduce the tariff on calls made between Mumbai and New Delhi to that of a local call is the latest testimony to the benefits of fostering increased competition. When the national long-distance telecom services were opened to competition more than four years ago, the entry barriers were set at such a high level that only three companies ventured to join the one-time monopoly incumbent, Bharat Sanchar Nigam Limited, in the fray. With the entry fee having dropped a few months ago, the number of participants is expected to swell to15, the first of the new lot being MTNL. Large-scale defection of fixed-line customers to mobile phones, no doubt, was screaming for a response from MTNL, but it was the NLD licence that provided the public sector unit with a new, lower cost structure, and made possible the sharp cuts in tariff.

Telecom is not the only sector where reform-induced competition has had a salutary effect on prices. Air fares nose-dived even in the face of rising fuel costs, as new entrants jostled to win space for themselves in the air. The unprecedented growth in passenger traffic is a direct result of more affordable fares. It is now up to the policymakers to take the positive lessons of competitive play into other sectors.

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