Evidence that economic reform in India has not managed to check or tame monopoly and promote competition is growing. In some areas reform has fostered oligopolies. In others it has served to consolidate the strength of existing oligopolies. Combined with the fact that liberalization has taken the teeth out of anti-trust institutions and policies, this has resulted in collusive practices that have allowed these oligopolies to earn large rents at the expense of consumers.
 
Consider for example the cellular telephone sector. Hitherto it has been dominated by a few service providers who won themselves licences by bidding to pay huge licence fees, and subsequently reneged on their promise. Claiming that they would have to shut shop if such fees were actually paid, and virtually frightening the public and the government into believing that this would ensure the mortality of an infant industry, they managed to migrate to a license fee regime that reduced their burden substantially. As has been argued by many, including some in government, this amounted to condoning the error and providing concessions to providers who, under false pretences, had in essence pre-empted entry by those who had originally submitted lower and more rational bids.
 
Having won themselves an oligopolistic position under false pretences, these operators, who combined under the banner of the Cellular Operators’ Association of India (COAI), have strenuously struggled to realize two objectives. They have sought to pressurize the regulatory authority, the Telecom Regulatory Authority of India (TRAI), to adopt a pricing principle and ceilings on tariffs that permits the realization of oligopolistic rents, despite regulation. And they have worked towards preempting competition from within and outside the sector, sp that such rents are actually realized.
 
They were successful in the pursuit of the first of these objectives because of the obvious bias of the originally constituted board of the TRAI in favour of the private operators that finally necessitated the reconstitution of the Board. The pricing principle that was adopted provides for a rental that goes to meet the capital cost of the provider and an airtime charge that covers operating expenses. This ensured that there was little risk left in the business. Other attempts to improve the profitability of the business such as the demand for a Calling Party Pays (CPP) regime, under which the caller meets the airtime charge for incoming calls whether or not the caller was a subscriber to the cellular network, were fortunately short down despite the then TRAI’s sympathy for the demand.
 
Given the rents implicit in the ceiling tariffs specified, if the view, which dominates reform, that the induction of private players into a business automatically induces competition were indeed true, actual cellular tariffs would have been driven well below the TRAI-specified levels. It did not because of collusion between the operators that transformed an oligopoly into a virtual monopoly.
 
What is shocking is the recent revelation that the cellular operators had in fact even flouted the TRAI ceilings. In a decision, which speaks for the credibility of the reconstituted board of the TRAI, especially when compared with its predecessor, the Authority has asked cellular operators to refund customers the excess amounts they have charged subscribers since August 1999, when the migration from the fixed licence fee regime to the revenue sharing system tool place. In the wake of migration the rental and airtime tariff ceilings worked out by the TRAI were Rs. 422 per month and Rs. 4.65 per minute respectively. As opposed to this cellular operators were charging Rs. 600 and Rs. 475 as rental for different time spans during the August 1999 to January 2000 period and Rs. 6 and Rs. 4 per minute as airtime charges. According to one estimate, after taking into account differences from the permitted maximum rate, subscribers on the standard tariff package have to be refunded as much as 13 per cent of the charges they have paid over the period August 1999 to January 2001. Across the country, the collusive practices of the operators have resulted in excess charges close to Rs. 400 crore.
 
Further, with the belated induction of new competitors into the business, it is now clear that the monopolistic position of the operators in different circles have helped them earn large profits from subscribers, by keeping tariffs close to the maximum permissible. This they ensured by preempting competition from outside the cellular industry. Since its inception the COAI has lobbied against the entry of new operators into the mobile telephony business, whether as fully-mobile operators or operators with limited mobility. For long, they managed, for example, to stall the entry of MTNL into the mobile telephony business using GSM, CDMA or WLL technologies. It has taken close to five years to break the stranglehold the COAI ensured over the industry through these means. The moment MTNL won its case to enter the GSM business in the Delhi metro circle with its Dolphin service, cellular tariffs have collapsed by more than a third on average. The willingness of Airtel and Essar to substantially cut tariffs to partially match the much lower tariffs announced by MTNL indicates that these providers had been earning huge margins relative to what they would now earn in the new competitive environment. And with the government having finally come around to the view that entry into the telephony business must be freed substantially, it would be no surprise if tariffs come down even further, revealing the extent to which private operators (inducted into the telecommunications area to reduce tariffs and improve customer service) have actually ended up fleecing the consumer.