The enthusiasm that accompanied the launch of various lifetime validity schemes by leading operators towards the end of 2005 appears to be fizzling out. Doubts have been cast by the Telecom Regulatory Authority of India (TRAI) over the sustainability and viability of these schemes.
What caught the regulator’s eye was the possibility of misuse. Says TRAI Chairman Pradip Baijal: “Precautions are required to protect the interests of consumers who make upfront payment for certain promised features to be availed of for life.
Therefore, soon after operators like Bharti, Idea, Reliance, BSNL, MTNL and TTSL announced lifetime validity schemes of less than Rs 1,000 for their prepaid and post-paid customers, TRAI initiated a consultation process to address user concerns and protect their interests.
There are several concerns. For example, a senior TRAI official notes, while setting up a small 10-seater inbound call centre with minimal infrastructure would typically cost Rs 450,000, if this were done through mobile phones availing of the post-paid lifetime schemes, the cost would be a meagre Rs 9,990 a month.
That’s not all. The regulator is also worried about the strain the new schemes will put on spectrum with the expected spurt in incoming calls. They could also deter introduction of mobile number portability.
No doubt, the lifetime validity offers have some advantages too ?? they are likely to trigger a surge in new subscribers, particularly in the rural areas and thereby increase teledensity. But while acknowledging this, the regulator and now analysts are concerned about issues like what would happen if the tariff patterns and interconnect usage charge (IUC) regime changed substantially. As telecom analyst Mahesh Uppal puts it: “Locking yourself into a scheme may not work if call charges come down in the future, which is likely to happen. Then tying up with one service provider at higher rates will make little sense.”
In such a scenario, do the operators need to spell out a penalty clause if they were to renege on the lifetime contract?
According to TRAI, operators need to clarify exit options for themselves as well as for users.
Also, with lifetime validity schemes, analysts feel that the industry is likely to suffer a further erosion in the average revenue per user (ARPU). Already, as per the latest data released by the Cellular Operators Association of India (COAI) for the quarter ended September 2005, the mobile ARPU was as low as Rs 374. This would drop further as subscribers under lifetime validity schemes can receive free incoming calls for life, provided the connection is active. For the connection to be termed active, all that the subscriber needs to do is to receive or make only one call over a six-month period. Therefore, feel telecom analysts, though the schemes will reduce subscriber churn (currently at a high 6 per cent a month), they will hit ARPUs significantly.
Telecom analysts point to regulatory glitches as well. The licences given to mobile carriers for operating services in different circles are valid for only 20 years. Taking this into account, TRAI is currently looking into the feasibility of the lifetime offers, as the fine print of the schemes states that the offer will be valid only till the time the licence is valid. “We need to know whether the scheme will be carried forward when the licences are renewed and what exactly is the definition of lifetime validity when the companies themselves have a licence for a limited period,” says a senior TRAI official.
Looking at the bigger picture, TRAI points out that schemes such as these with a lock-in period would reduce competition in the long run. They would act as a barrier for mobile number portability, which envisages allowing users to switch operators without having to change numbers. As it is, service providers are against increasing competition, which would be the case with the introduction of number portability. In fact, the operators’ argument would probably be that mobile number portability would be irrelevant once a huge proportion of subscribers opt for lifetime tariff plans.
Nevertheless, the regulator does see the immediate merits of such schemes. There would undoubtedly be a sharp rise in the number of telecom subscribers, which in turn would increase the country’s teledensity. Second, given its relative affordability, particularly for low-income users in small towns and semi-urban areas, cheap connectivity would be a definite advantage. TRAI also expects outgoing calls from fixed line phones to increasingly be terminated on mobile networks on account of these schemes.
TRAI intends to take into account all these factors while issuing guidelines on the lifetime validity schemes. That would be once the consultation process is over.
