Tariff Regulation
This dimension evaluates the regulatory environment related to consumer price regulation. In both fixed and mobile sectors, India is the clear leader once again (in the 2006 survey too India was way above others). In fact India's TRE scores for Tariff Regulation have even improved since 2006 (fixed has increased from 3.7 to 3.9; mobile has increased from 3.5 to 3.9).

In 2002, Trai stated that emerging market forces could effectively regulate mobile tariffs and that the regulator could therefore step aside. Since then, Trai has practiced forbearance in regulating most tariffs. Only integrated operators are required to seek prior approval for their tariffs. With increased competition, Indian consumers today enjoy some of the cheapest tariffs in the world.

Despite early opposition from the policymakers and the government, the regulator has proved that its approach was right. In the survey, the stakeholders reward the regulator's approach by giving it high scores. In recent times, regulations to slash roaming rates have been enacted.

Many countries perform poorly in this dimension and receive TRE scores that are below the 3.0 average. It is likely that old command and control mindsets are most at play in tariff regulation, with government bureaucrats making decisions with little or no basis, and in many cases characterized by delays.

Universal Service Obligation
This dimension asks stakeholders to evaluate any universal service conditions imposed, and identifies if the administering of the universal service program/fund is done in a transparent, non-discriminatory and competitively neutral manner so that it is not more burdensome than necessary for the kind of universal service defined by the policy makers.

As with tariff regulations, many countries perform below average in this dimension and receive scores below 3.0. India and Pakistan's high scores are noteworthy. Both countries are experiencing increased penetration in rural areas, thanks to extremely low cost of connectivity. Indeed rural areas are where the growth is, since the urban poor appear to be well connected.

Of particular interest in the improvement of India's mobile segment is the USO score from September 1, 2006, to January 3, in 2008. This is the biggest increase in a TRE score seen yet, in any country, for any dimension. In 2006, India received the lowest USO scores out of all the countries surveyed. At the time of the 2006 survey, India had the world's second largest universal service fund with nearly $4 bn collected and not distributed.

Until March 2007, universal service funds were only available to fixed line operators in rural areas, even though mobile operators had to contribute 5% of their gross revenue towards the fund. The result was, in essence, a subsidy to the incumbent fixed operator by the mobile industry. In a significant shift in policy, mobile operators were invited in 2007 to bid for last-mile connectivity funds.

Even though India still accounts for nearly 50% of the undistributed universal service funds in the world, the changes that allowed mobile operators to benefit from such funds has created a significantly positive impression amongst stakeholders, as evidenced by the high score (and very high increase in the score when compared to 2006).

Ironically, the worst performer in third dimension, Indonesia, appears to be repeating the mistakes India made (but later corrected). For example, all operators pay 0.75% of their revenue toward a universal service fund. But the collected fund has not been disbursed due to delays, canceled tenders and halted procurement processes.

The setting up of the USF is in itself the latest in a series of attempts in Indonesia to increase rural penetration. Earlier schemes included mandating that the incumbent invest 20% of revenues in rural connectivity (an order not followed by the incumbent), and spending government funds to set up telephone units in about 3,000 villages using satellite connectivity (which only contributed toward achieving 15% of universal service targets).

Regulation of Anti-competitive Practices
This dimension evaluates the regulatory environment and other regulatory responses to anti-competitive activities that include, but are not limited to, not imparting technical information about essential facilities and commercially relevant information available to competitors, excessive prices, anti-competitive cross subsidization, predatory low pricing, refusal to deal with operators and other parties, and disruption of interconnection.

The TRE for this dimension, more than the other six, captures the subjective perceptions and impressions stakeholders have not just about the 'what' of regulation (ie the specific decisions related to tariffs, or USO, etc) but the 'how' (the often intangible nuances of how the regulator makes decisions, which parties have influence, etc). All the countries in the study have historically had (and often currently have) incumbents with strong ties to the government.

In most cases, due to the incumbent's historical advantages, new entrants had (and currently have) a difficult time capturing market share. Also due to lack of capacity, the regulator has to rely on the incumbent for technical and regulatory expertise.

As an example, in Bangladesh, senior engineers from the incumbent fixed operators are seconded to the policy maker's office in government, and are the sole resource of technical expertise. These situations tighten the links between incumbent and regulator/policy maker (even if they do not result in outright regulatory capture by the incumbent). At a minimum, they create the perception among new entrants that they are at a disadvantage. At worst they indeed result in discriminatory decision making against new entrants.

On the other hand, incumbents also constantly ordered to open up and share elements of the network with new entrants, and therefore feel they are being stifled from competing aggressively. The result is that nearly every country receives scores that are well below average in this dimension, indicating overall unhappiness of stakeholders.

Quality of Service Regulation
This dimension evaluates the regulatory environment with regards to quality of the different services provided. At a fundamental, QoS regulation is about whether or not the operators consistently provide a specified or promised level of service, and how lapses in QoS can be remedied in response to consumer action or other event.

Most countries in the region have experienced a mobile revolution resulting in low prices (often the lowest prices in the world) and high growth (again, some of the highest growth rates in the world). In optimizing the networks (and business models) to serve a highly value-conscious and often poorer consumer, telecom companies have had to compromise on quality.

Though comparative indicators are hard to find (the ITUs data are outdated), anecdotes of call/signal drops and network congestion are common. The situation is noticeably worse in the broadband sector-high contention ratios on DSL lines are common across the region. The discrepancy between advertised broadband speeds and actual throughput is stark.

Some countries are actively seeking to remedy this situation-India has recently published a consultation paper on broadband quality and is going through a public consultation process; the Philippines regulator has announced measures to look into the quality of broadband services. Most countries do not have clear or official consumer redress systems. But anecdotal evidence suggests that some regulators do take consumer complains seriously.

Risk is partially a matter of objective analysis-for example, an investor can calculate an expected rate of return based on cost of capital and other factors that are more within his control. However risk, to a great extent, is also a matter of perception. For example, macro-level country risk and regulatory risk are both difficult to measure objectively. But at a minimum, a subjective measure is necessary prior to making an investment.

Investors are looking for enhancing their risk taking abilities, while they would like to enhance RoI. Countries that are stepping up their efforts to attract investments need to do more to convince the investors.

Arpita Prem & Baburajan K
arpitap@cybermedia.co.in