Change telecom rules

The crashing prices of telecom services, particularly the wholesale purchase of bandwidth, have thrown up many innovative applications. A natural idea is to buy bandwidth at wholesale prices and sell it at retail prices. This is done by numerous small firms worldwide, who negotiate for low prices of bulk bandwidth, and then sell it to individuals and businesses through calling cards, voice-over-IP (VOIP) services and special access codes. Not surprisingly, conventional local telephone companies resent competition. They see these interlopers as undercutting their market. In India, the department of telecom thunders about the evils of "illegal" phone calls, puts out newspaper advertisements warning users to shun phone calls where the caller id is not visible, and even sends the police after providers. Every now and then, there are newspaper reports about a DoT "crackdown" on an illegal provider, with a few people being carted off to prison. Of course, anyone with a computer is able to use Skype at home and achieve free international calls, so such enforcement is obviously spotty.

The DoT approach is profoundly wrong. Buying, repackaging and selling bandwidth are as ordinary and mundane activities as buying, repackaging and selling (say) chemicals. It is an integral part of the competitive market process. If an "illegal" calling card vendor can provide better services to the user of a mobile phone than the mobile phone company itself, then there is absolutely no role for the state to come in the way of these private transactions between consenting adults. Telecom companies call this "tariff structure arbitrage" and indeed it is. It is beneficial for achieving market efficiency in the telecom industry in exactly the same fashion that arbitrage enhances the efficiency of financial markets.

For the telecom sector, the best role model is roads. The government, or a private vendor, owns the road. A toll is generally charged for the use of the road, and this is legitimate since the user must pay for transporting the payload. Once this is done, the government has absolutely no say on the nature of the payload. What goods are carried""whether chemicals or clothes""is not the business of the government. In similar fashion, in telecom, a wholesale buyer of a trillion bits of data is entitled to transfer a trillion bits of data. What is done with these trillion bits of transfer""whether it is used to transfer voice calls or pictures of Bollywood stars""should be entirely about the business strategy of the wholesale buyer. There is absolutely no role for the government to get involved in constraining the use of this bandwidth. If the law of the land permits the characterisation of innovative repackaging and sale of bandwidth as being 'illegal', the law needs to be amended. Such modernisation of the law, and an elimination of the DoT efforts to impede 'illegal' calls will make possible a crash in the prices of domestic and long-distance calling. This will be good for the customer, and increase competitive pressure on the oligopoly of telecom companies. In the case of international long distance, foreign calling cards are already available, but the more important field of domestic long distance will benefit greatly from opening up to dynamic and nimble players who are able to creatively arbitrage the gulf between low wholesale prices and higher retail prices.