The Supreme Court last week determined that some sections of the Telecommunications Amendment Bill are inconsistent with the Constitution of Sri Lanka. The determination included a citation of the insights provided by LIRNEasia in a research article (2009) titled “Banded Forbearance: A New Approach to Price Regulation” compiled by LIRNEasia Chair Prof. Rohan Samarajiva and Policy Fellow Tahani Iqbal.
The Telecommunications Amendment Bill, introduced by the Sri Lankan government in May, proposed several changes to the regulatory environment of the telecommunications sector. Several petitions were filed challenging various sections of the Bill. Petitioners also argued that the discretionary power to forebear tariffs as proposed by Section 6A (4) could be applied selectively, benefitting some providers over others potentially leading to market biases. In its determination, the Supreme Court extensively quoted from the work of Professor Samarajiva and Tahani Iqbal, particularly focusing on their analysis of tariff forbearance.
Their analysis published in International Journal of Regulation and Governance in 2009, investigates the feasibility of regulating prices in telecom markets, focusing on approaches such as regulatory forbearance and asymmetric regulation. It then proposes a regulatory mechanism termed ‘banded forbearance’, derived from benchmark regulation and especially useful for regulating prices in microstates with few competitors, but with possibly broader application.
The Supreme Court cited:
“The need for regulatory forbearance has been explained by Prof. Rohan Samarajiva and Tahani Iqbal [Banded forbearance: A new approach to price regulation in partially liberalized telecom markets, International Journal of Regulation and Governance, 9(1), 19-40] as follows:
‘Based on the premise that there is little need for intervention as the number of service providers grows and competition increased in a marketplace, regulators can refrain or forbear from intervening or imposing controls in a market. Schultz (1994) considers this as means to give new firms without market power the space needed to flourish.
Deeming sufficient competition to exist in the Indian telecom sector, the Telecom Regulatory Authority of India (TRAI) forbears from price regulation in urban areas, although it does regulate some prices in rural areas…
India now has some of the lowest mobile tariffs in the world (LIRNEasia, 2008, 2009; Nokia, 2008a) and a flourishing mobile market – the compound annual growth rate for 2000-2005 for mobiles was 90.6 per cent (International Telecommunications Union, 2007). The findings of the Telecom Regulatory Environment (TRE) assessments carried out by LIRNEasia in 2006 and 2008, indicate that India received the highest scores on the tariff regulation dimension among the countries studied (Prem & Baburajan, 2009), indicating TRAI’s (Telecom Regulatory Authority of India) approach is appreciated by informed stakeholders.
Forbearance does not necessarily mean that the regulator relinquishes all responsibility for regulation; the regulator may choose to forbear on certain aspects only based on assessments of market power and potential for predatory pricing; and regulation may be re-imposed if justified. In the case of regulating the markets for terminal equipment, wireless services and toll services, the Canadian Radio-Television Commission (CRTC) forbore from regulating these markets deeming them ‘workably competitive’. In the terminal equipment market, the Commission forbore on the sale, lease and maintenance of single-line, multi-line and data equipment.
In the wireless services market, regulatory forbearance was enforced in markets for mobile phones and data and wireless devices; however, conditions were included to safeguard customer confidentiality with regard to interconnection (Organization for Economic Cooperation and Development, 2002). The toll-services market, on the other hand, was only partially forborne, with the CRTC requiring price and cost filings only in the market for long distance tolls. To decide on the competitiveness of a market, the Commission took into account the market share of the largest firm, the price elasticity of demand and the contestability of the market.’
The concept of tariff forbearance
Tariff forbearance, as explained by Prof. Samarajiva and Iqbal, is a regulatory approach where intervention is minimised as market competition increases. This concept, successfully implemented in various jurisdictions, allows new firms to thrive without undue regulatory burdens.
The Supreme Court’s determination highlighted several key points from their analysis:
- Competitive market dynamics: Forbearance can help foster a competitive market by giving new entrants the space needed to establish themselves.
- Selective regulation: Regulators may choose to apply forbearance selectively, based on market conditions and potential risks such as predatory pricing.
- Global examples: The Telecom Regulatory Authority of India (TRAI) and the Canadian Radio-Television Commission (CRTC) have applied forbearance effectively in their respective markets, leading to significant growth and consumer benefits.
The Court determination then noted:
“As the learned ASG pointed out, tariff forbearance is to be applied ‘to particular services’ and not individually on each operator or provider. Examples of services that may be subject to tariff forbearance could be certain value-added services such as news alerts, e-channelling messages, etc. Tariff forbearance is basically where a regulator specifies certain services for which its approval need not be obtained. We determine that Clause 4 of the Bill is not inconsistent with any provision in the Constitution.”
As LIRNEasia remains committed to advocating for policies that promote transparency, fairness, and growth in the telecom sector, this recognition marks a significant policy impact, emphasising the organisation’s influence on regulatory frameworks.
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