For decades, we swept the issue of regulation under the carpet by the simple expedient of public ownership. In recent years, with the state unable to mobilise enough resources to meet society's requirements of a variety of services, we have no alternative to allowing private supply of these services. When we do so, we have to confront the essential regulatory question "" what is the regulatory framework, comprising both the set of rules and the institutional structure set up to implement them, that is most likely to fulfil the social objectives of the process?
We have faced this question on a number of fronts in the last couple of years "" aviation, telecom and power generation, to name a few, and were an honest assessment to be made, we must accept that our record has not been very good. Most private airlines have fallen out of the skies, private provision of basic services in telecom is far from being realised and the issue of private power generation has the past and current finance ministers wringing their hands in dismay. Private sector activity in broadcasting is the latest activity to be brought under regulatory purview through the new legislation introduced in Parliament this Friday. As it stands, does this legislation satisfy the standard of appropriateness?
Before getting to some specific aspects of the bill, let me set forth some general (and, I hope, unobjectionable) principles. First, regulation is only necessary when there are reasons to believe that the market will not perform efficiently. This happens most commonly in the instance where there is a natural monopoly (as has historically been the case in many of the services we are talking about); however, there are also other conditions that might lead to market failure, such as asymmetric information and high transactions costs. Second, if the need for regulation is established, then its objective should be to provide the consumer the service with reasonable reliability at a reasonable price. In other words, regulation should not have generally have the effect of raising of cost of providing a given quality and quantity of the service.
More From This Section
An important difference between the regulation of broadcasting and the other service activities that I referred to above is that private activity in broadcasting has been going on for quite a while without a formal regulatory structure. We have thus had the opportunity to observe its functioning, and should certainly use this information as an input into the regulatory process. Any proposed regulatory framework should ideally be based on a combination of the general principles laid out above and our experience with the industry in an unregulated environment. With this in mind, and with the added constraint of column space, I shall venture to assess some aspects of the bill as it stands.
Strictly speaking, as things stands, there is no real market interface between the satellite broadcaster and the viewer; it is actually between the viewer and the cable operator. The overall experience with the typical small-scale neighbourhood cable provider, I perceive, has been generally positive, and has improved with the initiation of large franchise networks such as In Cablenet and Siticable. Fees are reasonable, service is reliable; the market appears to be working well in this interface. Direct-to-Home (DTH) services are an attempt to bypass the cable provider, and involve the incurring of substantial fixed costs by the viewer by way of receiving the decoding equipment, which are currently being borne by the cable provider and spread over his entire clientele. Here is a situation in which high transactions costs (the upfront costs of acquiring the equipment) may cause this market to fail. There are two possible scenarios; one, where the DTH provider goes out of business, leaving the viewer with
useless equipment, and two, where a better provider enters the market, but with a different technical standard, thus denying viewers who have already subscribed to DTH the flexibility to shift relatively cheaply to the new provider. I think there is room for regulation here in terms of (i) some kind of financial or buy-back guarantee required to be provided by the DTH provider to the subscriber and (ii) some requirement of technical standardisation that allows relatively low cost switching.
Perhaps the touchiest issues in the proposed legislation are the restrictions on ownership in two dimensions "" cross-media holdings and foreign investment. On the first restriction, the dominant consideration should be the second principle enunciated above. Recent global developments suggest that the structure of the media industry is being driven by the scale and scope of economies that characterise information technology. Centralised information gathering and multimedia dissemination is the way to keep production costs as low as possible. Restrictions on cross-holdings appear to go against this fundamental trend in the industry, and to that extent, may end up forcing a higher price of the service on the consumer of all types of media. Even now in the Indian context, we observe a relatively high degree of crossover of people between print and broadcast journalism on the one hand, and between broadcast and cinema on the other. This is, to me, reflective of the synergies that exist between various media for
both information and entertainment purposes. The objective of regulation should be to encourage the realisation of these synergies, not hinder it. There is, of course the counter-argument that news monopolies may eventually emerge. However, we have a comprehensive legislation in place to prevent the misuse of monopoly power in the form of the MRTP; why do we need a separate activity-specific regulation to guard against its misuse in this industry?
The foreign ownership issue, of course, encompasses the usual arguments of sovereignty versus foreign influence in a sensitive activity such as media. However, like it or not, there is also an economic dimension to the issue, and by that standard, the same justifications that we have accepted for allowing foreign investment into any other sector apply. There are all kinds of potential backward linkages that are likely to develop, particularly since we are revealing major strengths in information technology. Another way of putting it is that at many levels, information is just another commodity, which has become an increasingly important input into commercial decision-making. If we accept that it is basically just a commodity, then activities aimed at generating and processing it should be treated on par with any other application for foreign investment.
As I said earlier, space prevents me from analysing several other important issues in the legislation. What I have tried to do here is to use a simple set of economic criteria to evaluate three aspects of the bill; in doing so, I have put forward some arguments as to why these conditions, in their current state, may not serve the purpose that the regulation is ostensibly for. The bill has a long way to go before it is passed, and one hopes that the intervening public debate will make a substantial and positive contribution to its eventual form.