How important is it for TRAI to be independent of government funding?

Mohit Saraf
Independence is a very important attribute of any regulatory body including TRAI. Dependence upon the government to meet its funding requirements may affect TRAI’s quasi-judicial independence and credibility, especially when the government is still the majority owner of the incumbent operator. Further, since the government appoints the members of the TRAI, it should take steps to ensure that the regulator is not only independent, but is also seen to be independent. TRAI’s financial independence would provide comfort to the service providers that the regulator is even-handed and that they can expect a level playing field, without any special treatment or consideration being conferred upon the incumbent. This, in turn, would promote investor as well as consumer confidence and assist in the healthy growth of the telecom sector.

Archana Sassan
A very crucial aspect in the decision making process of any regulator is the source and management of the regulator’s finances. The autonomy of any regulator granted under the law can be easily undermined if the institution does not have financial autonomy. For effective functioning and transparency, it is essential for the regulator, TRAI in this case, to be independent of government funding to achieve in practice what is prescribed in the law.
As mentioned in the Guidelines on Expenditure Management issued by the Ministry of Finance in September 2004, organizations having the potential of raising resources should do so. Therefore, TRAI’s recommendations on funding of TRAI are very apt and timely.

Rajat Sharma
It is very important for TRAI to be independent of the government in terms of funding. There are many reasons for this. The bureaucratic influence of the government affects the efficiency of an organization like TRAI. Financial independence is a must to avoid such inefficiencies. Also, there are many ministerial pressures that influence the organization. An example of both these problems is the case of the unbundling of the local loop. Because of the involvement of the ministers, paperwork gets held up for long periods. All sorts of pressures within the government cause many of the recommendations to be rejected. Also, since TRAI is handling regulation in both broadcasting and telecom, there will be difficulties in accounting if funds come from different sources.

Prashant Singhal
TRAI is an impartial and autonomous regulator of the telecom industry. One of the reasons for its creation is the fact that the government could not play the part of an independent regulator as it was and remains an interested player in the telecom industry. For the agency to preserve its independence and to ensure that it is not influenced by a player it is supposed to regulate, it is important that it does not depend on government funding.

Mahesh Uppal
Funding that is independent of the government is critical for any regulatory body, more so if it is to carry enough credibility in a market where government-owned operators are players in the market. Further, given the costs involved and the pressures on public budgets, to be dependent on resources from the government means making do with much less funding than the regulators need to do an adequate job.

What is the experience of other countries with respect to this issue?

Mohit Saraf
A 2001 World Bank study indicates that world over, telecom regulators are self-funded and that financial independence is an essential attribute of regulatory independence. Telecom licence fees levied on the operator form the basis for self-funding across a wide range of developed jurisdictions like the US, Germany, Spain, the UK and the European Economic Community.

Archana Sassan
In several countries, the source of revenue for the telecom regulatory authorities is mostly the licence fees, spectrum fee, numbering fee, regulatory fees, etc., a practice that minimises political interference. We are not aware of there being any adverse consequences of such an arrangement.

Rajat Sharma
In the case of the US, the regulatory body, the Federal Communications Commission (FCC), is a government-controlled body. This is also the case with the Office of Communications (OFCOM), the regulator in the UK. However, the difference in these cases is that these bodies are separate from ministerial influence. This is very important for a regulator to function effectively.

Prashant Singhal
According to information available, in 72 countries, the revenue of the telecom regulatory bodies is derived from various types of fees and charges. In several countries, the source of revenue for the regulator is mostly the licence fees, spectrum fee, numbering fee and regulatory fees. However, in some of the mature markets, such as the UK, the OFCOM is financed by licence fees (of 19 per cent), government appropriation (of 59 per cent), others (of 7 per cent) which include government departments, commercial property sublets and broadcasting application fees. In the US too, the FCC is funded by 3.6 per cent government appropriation and Other Auctions receipts, which are deposited with the Treasury. Funds are allocated from the receipts as needed to cover the cost of running the Auctions Program. However, in each of these countries, there is clear public accountability towards the regulator in spite of it being partially funded by the government.

Mahesh Uppal
The experience is mixed. However, the government is not a major player in many of the largest markets. This means funding from it is not an issue. In most countries, operators pay a substantial cost of regulating them. Larger operators pay much more. The amount is typically based on their turnover and varies from year to year.

What would be the best use of the funds for the regulator?

Mohit Saraf
The use of funds should be to ensure the efficiency and competence of the regulator. The most effective means of ensuring efficiency and competence is to provide the best available human resources for the regulator. Hence, these fund should be utilized to provide competitive salaries and other emoluments to attract the best talent in addition to the responsibilities due to TRAI’s broadening regulatory sphere. As a responsible regulator, TRAI should also be committed towards implementation of its orders, and ensuring a comprehensive oversight mechanism. These funds should, therefore, also be utilized to ensure an efficient monitoring and implementation system. Given that consumer welfare is an important objective of TRAI, it should also ensure adequate publicity of its orders and regulations to enhance consumer awareness.

Archana Sassan
The funds could be used to support regulatory functions such as staffing. Further, the funds could be used to provide cost-effective services, realising the universal service obligations, increasing teledensity, providing access to new services, introduction of new technologies, etc. The funds could also be used to support consumer groups and their programmes on improvement of telecom services, quality of service, etc. particularly those in remote areas.

Rajat Sharma
The best way for TRAI to use these funds is for it to hire more professionals like consultants and lawyers. At present, TRAI has only five members, of which two are part-time members. There is a need to increase the number of professionals to make sure that there is enough manpower to support the regulatory purpose.

Prashant Singhal
The best use of such funds could be in providing better infrastructure for telecom regulation. TRAI could commission informed third parties for carrying out independent research and study on the Indian telecom scenario. Increased interaction with regulators in other countries could also help in facilitating and imbibing best global practices.

Mahesh Uppal
Substantial funds are need to hire expertise, whether legal, technical or economic. It is almost entirely composed of staff deputed from other government departments. Most of them are not specialists. TRAI requires additional funds to carry out many of its statutory functions. Its chairperson only recently lamented that it is unable to check circumventing of ADC payments, even though it follows from one of its functions in the TRAI Act, because it did not have the resources. Consumer bodies need assistance from TRAI to represent ordinary users and to participate in TRAI’s processes in which currently only the service providers tend to be active.

How do other regulatory authorities in India, SEBI for instance, raise their funds?

Mohit Saraf
As in the case of SEBI, IRDA and the electricity regulatory commissions (ERCs), TRAI has been provided with a general TRAI Fund wherein all grants, fees and charges are deposited. But the similarity ends there. All the other regulatory authorities have a self-sustaining source of revenue, independent of government grants. And this is the true measure of their autonomy. In the case of IRDA, it is a percentage of the premium income received from the insurer. The ERCs and SEBI raise revenues through licensing or registration fees. It is for this reason that TRAI has recommended that a certain portion of the license fees may be earmarked to sustain its regulatory activities. The government should, therefore, ensure that a portion of the license fees that is sufficient to cover the existing and future expenditure of TRAI be earmarked for the TRAI Fund, though a suitable amendment to the TRAI Act. Such a provision would confer true financial autonomy on the regulator.

Archana Sassan
Regulatory authorities like SEBI and IRDA derive their revenue through cess and fees. For instance, IRDA’s financial autonomy has been ensured in the IRDA Act, 1999, which lays down that IRDA is entitled to a “percentage of the prescribed premium income received from the insurer”. The regulator can constitute a fund to which all government grants, fees and charges received by it would be credited, as well as all funds received from other sources as decided by the government and a percentage of the insurance premium income. This percentage would go “to finance schemes for promoting and regulating professional organizations”. As rightly mentioned in the TRAI recommendations, SEBI and IRDA are self-sustaining in that they are able to generate adequate revenue by virtue of the financial autonomy available to them.

Rajat Sharma
These bodies are financially autonomous, a fact that is very important for any regulatory body to function effectively.

Prashant Singhal
SEBI is funded primarily by the government. But there is a major difference between SEBI and TRAI. SEBI is a regulator of the capital markets, and the government is not a player in the capital markets. On the other hand, in the telecom sector, there are powerful government-owned companies that are in direct competition with private companies. Therefore, the scope for conflict of interests is greater. Whereas IRDA is supposed to be funded by insurance companies, at present, there is a difference of opinion between the regulatory authority and the finance ministry over allocation of funds.

Mahesh Uppal
Almost all are funded by the government.

What other measures can help TRAI to become financially autonomous?

Mohit Saraf
TRAI should examine the areas where it is providing services to the industry or other players and levy a cost-based fee for providing such facilities. One area where TRAI is already doing this is for maintaining the registry of interconnect agreements. Similar fees can be levied in other areas too.

Archana Sassan
The legal status of a regulator is in most cases clearly defined and, as a general rule, the more autonomy the regulator has, the better positioned it is to take advantage of extra funding sources in the form of direct loans and leases. The support from the industry, which would include payment of a fee based on the revenue of operators or fee for licences of operators, service providers, telecom vendors and users of radio spectrum in order to enable generation of funds but with a consideration, that such levies do not eventually burden the consumers, are some of the developments that could help TRAI to be financially autonomous.

Rajat Sharma
The work that TRAI has done until now is commendable. It has kept pace with global technological developments that have taken place. Thus, if there is any constraint, it is not because of lack of will but lack of financial autonomy.

Prashant Singhal
The proposal to let TRAI get a percentage of the revenue fees seems to be reasonable and will accord sufficient financial autonomy to the regulator. The exact percentage of the revenue share can be worked out between the government and TRAI. While TRAI is empowered to impose levies and cess, it should be ensured that an unreasonable additional financial burden is not imposed on private operators. Also, it is recommended that the fee assurance should be annually or bi-annually reviewed.

Mahesh Uppal
TRAI needs to levy charges on operators according to their turnover. It should levy fees and penalties based on more rigorous calculations. It should recruit its staff from outside the government.