Layton

experiments. Similarly, regulatory decisions should have the same quality of process and logic as
scientific experiments, and the outcome should be factual and independently verifiable.
Telecommunications has historically been a highly regulated sector for legitimate reasons: there
was a national telephone company; telecommunications were considered crucial for national
security; and in many countries, the TSPs were de facto tax collectors for the state. However as
communications technologies have advanced and diversified, deregulating the national telephone
monopoly was seen as key regulatory activity. In the last 25 years alone, more than 100 telecom
regulators have been established for this singular task. In fact ensuring the transition from
monopoly to competition is the charter of a telecom regulator. So as much as possible, the
telecom regulator should facilitate market entry, differentiation, and competition. Regulation by
its nature creates distortions and asymmetries, so it needs to be applied in a limited way and only
when absolutely necessary. Pricing and offers are some of the most basic ways that firms can
compete, so this ability should be encouraged.
Following are answers to the consultation questions.
1: Should the TSPs be allowed to have differential pricing for data usage for
accessing different websites, applications or platforms?
The short answer is yes. TSPs should be allowed to have differential pricing, and this is protected
by law. But the need for differentiation can be explained from the basics of economics and the
history of connectivity and content which were always sold with a differentiated price.
Economic justification for differential pricing
We may take for granted why we use prices, but they play an important role in the marketplace.
Prices communicate information to consumers. Prices help to provide efficient distribution of
goods and services. Price regulation, such as ceilings or floors, are in fact distortionary and
misleading, and generally result in shortages or surpluses. In telecommunications this means that
some users would go without connectivity or access. It could also mean that TSPs would have
unused capacity that would be wasted.
The role of pricing in the modern telecommunications is to drive competitive dynamics. Having
differentiated pricing is essential to realizing Prime Minister Modi’s Digital India initiative. Its
three major goals can be realized in party through differential pricing: the creation of new
telecommunications infrastructure; the delivery of digital services; and digital literacy.
Network industries, such as telecommunications, have high upfront costs which are generally fixed
for a large set of users. Once established, the cost of incremental output declines. It makes sense,
therefore, to charge users with lower willingness to pay a discount, and thus cover the overall
costs.
To put it another way, the fixed costs of a network are the same whether there are 1 million or
100 million users. Thus it behooves the TSP to maximize the number of users on the network at all
possible price points because it maximizes revenue. By imposing a rate regulation or price
controls (or by banning the ability to differentiate on price), TRAI will reduce the incentive for a
TSP to invest in new networks. To be sure, some users can afford a higher, regulated price, but
6 | 7 January 2016 | Differential Pricing for Data Services