The DoT, as expected went on appeal against the TRAI to the High Court. In July 1998, Justice Usha Mehra ruled that the TRAI had no jurisdiction over disputes between the licensor and licencees. In her view, it could "safely be concluded that the authority (TRAI) fell in error in concluding that the power of the Government to grant or amend the licence is subject to the recommendation of TRAI or that these recommendations are mandatory in nature." Having arrived at that judgement, she went on to rule that she had "no hesitation to hold that the impugned order (relating to MTNL) suffers from legal infirmities."
 
With the ruling that the grant or amendment of licence does not fall within the jurisdiction of TRAI, all the cases in which private operators had obtained a stay from the TRAI on imposition of penalties by DoT for non-fulfillment of licence conditions proved infructuous.
 
The case against the TRAI expanding its powers into areas in which it had no mandate was finally sealed with the most recent judgment on the Calling Party Pays (CPP) regime notified by the TRAI. In its notification of September 17, 1999, which instituted the CPP regime, the TRAI "decreed" that incoming calls to a cellular subscriber would be free (not subject to airtime charges). The cost of the call from a fixed to a mobile phone, set at Rs. 3.60 a minute by TRAI, would be borne by the latter, and the revenue derived from these calls were to be shared between basic and cellular operators. The TRAI had said that cellular operators would receive 80 paise per local call. The CPP regime was challenged by an NGO, Telecom Watchdog, which argued that the new regime was unjustified and placed an excessive burden on fixed phone users. Later the Department of Telecommunication Services (DTS) and MTNL impleaded themselves in the case. Both challenged the reasonableness of the revenue share fixed by Trai and its rights to fix revenue shares.
 
In its recent ruling on the case, the division bench of the Delhi High Court consisting of Chief Justice S N Variava and Justice S K Mahajan not only struck down the CPP regime, but also the interconnection regulation, issued by TRAI on May 28, 1999, which allowed the latter to issue interconnection orders overriding licence agreements between the government and private operators. The bench held that the TRAI had no powers to fix revenue sharing terms between service providers. It therefore asked the TRAI to work out a new regime in place of the CPP regime earlier notified. With this case the legal position on the matter of the jurisdiction and powers of the TRAI had been made amply clear, precipitating an immediate announcement of a restructuring of the regulatory framework by the government.

The Political Economy of Regulation
The Telecom mess stems not merely from jurisdictional battles and conflicting interests. It is primarily the result of the manner in which, having decided to open up an area which lends itself to domination by public monopolies, the government has, in practice, sought to muddle through towards formulating what increasingly appears to be an elusive policy framework.
 
The growth of the telecommunications services sector proceeds through many phases, with significant implications for pricing strategies. It starts with dominantly local traffic on fixed lines. Pure accounting rationality would suggest that at this stage, the pricing of access should cover average costs. As the network spreads, pricing strategies separate the price of minimal access at a fixed rental and charge intensive users separately for transmission and switching costs of actual use. Rentals are kept low to attract low income consumers onto the network.
 
When the network develops further and the demand for long distance traffic grows, the high usage value associated with such traffic paves the way for subsiding local traffic with revenues on charges on long distance traffic. The recruitment of new subscribers provides an externality to those linked to the network, since the utility of the network increases with size, accelerating expansion. It is after this stage that any effort at reducing subsidies or cross-subsidisation is warranted, with the focus not on increasing the cost of access, but of reducing the cross subsidisation of local traffic by long distance traffic. Meanwhile, new uses of the network result in diversification. Available and increased bandwidth allows the network to carry non-voice signals such as data, text and graphics. Here too it could be argued that strict accounting principles should not be applied, so that users are not discouraged from utilising devices and services (such as the Internet) which have great potential.
 
This need to abjure an accountant's view of pricing thus stems from a number of arguments. First, easy access to a telecommunications network is normally considered to be a second-order "essential good" which citizens are entitled to at a reasonable charge. Second, given the externalities (or direct benefits to other economic activities) associated with telecom access, the growth of the network is seen as yielding larger benefits to the system than the immediate benefit derived from usage by an individual consumer. Third, given the new uses generated by technological progress which can have far-reaching economic effects and implications, pricing should not be allowed to discourage diversification of uses of the network.
 
These arguments in favour of a pricing strategy not based on pure accounting rationality also make a case for leaving the telecommunications sector to public utilities. Given characteristics such as lumpy investment requirements and low profits at least at some locations, it is to be expected that the service is unlikely to be appropriately priced and satisfactorily provided by market channels. This is likely to be particularly true in developing countries, where the demand for such services is extremely uneven in spread.
 
If despite this case for provision through public utilities, private entry is advocated on grounds of competition aimed at improving service standards and on the basis of not-so-well-founded arguments that available public capital needs to be supplemented with private capital to efficiently meet the demand for telecom services, it becomes necessary to attach conditions to licence provision and to cap prices charged through a tariff-setting mechanism. A regulatory framework also becomes necessary because private entry in most telecom services allows the private entrants to earn rents on account of a number of reasons.