The Department of Telecommunications (DoT) recently cleared the way for all long distance telecom licensees to market their products directly to consumers in the form of prepaid packages or through calling cards. For international telecom players, the move comes as a shot in the arm as it means direct access to India’s 400 million-plus mobile subscriber base. For end-users, the move should be particularly beneficial, as increased competition in the space will lead to more tariff choices.
Over the past few years, DoT and the Telecom Regulatory Authority of India (TRAI) have made several attempts to boost competition and promote growth in this space. This has led to a host of domestic private operators and international telecom majors queuing up to tap the segment.
Today, there are as many as 26 national long distance (NLD) licence holders and 24 international long distance (ILD) licence holders in the country ?? all vying for a share of this lucrative market segment.
Key milestones
Reduction in licence fee
A major policy change in the long distance segment came about in November 2005 when the annual licence fee payable by operators for providing ILD and NLD services was reduced from 15 per cent to 6 per cent of gross revenue. The entry fee for NLD and ILD operators was reduced from Rs 250 million and Rs 1 billion respectively, to Rs 25 million. The sharp fee reduction resulted in a rush for licences with DoT receiving more then 20 applications.
To withstand the onslaught from new players, existing players like Reliance Communications (RCOM), Bharti Airtel, Bharat Sanchar Nigam Limited (BSNL) and Tata Communications, ramped up their operations. Mahanagar Telephone Nigam Limited (MTNL), for instance, broke its age-old practice of using BSNL’s long distance network to carry its traffic. Instead, it started offering local call rates to its subscribers for calls between Delhi and Mumbai using Tata Communications’ long distance network.
Meanwhile, making it still more attractive for operators, in 2008, DoT scrapped the Rs 4 billion guarantee that operators were required to furnish and allowed entrants a three-year time period to set up their infrastructure. New licensees were allowed to ride on the infrastructure of existing players, thus enabling faster rollouts. Quick to act on it, Airtel offered global long distance carriers the option of using Airtel’s network within India, rather than rolling out their own networks.
Going forward, the move will especially benefit new telecom licensees like Unitech Wireless and Etisalat DB who can save huge costs in rolling out long distance networks by riding on the existing operators’ networks.
Phasing out of ADC
In order to give a further fillip to the sector, TRAI, in March 2008, decided to completely phase out the access deficit charge (ADC). With effect from April 2008, the levy on all domestic calls was removed. ADC paid by ILD operators at the rate of Re 1 per minute on all incoming calls was also halved to Re 0.50 per minute. That too, was removed by September 2008.
Almost all the operators passed on the benefits to their subscribers, offering competitive long distance tariffs. This, in turn, triggered a price war in the long distance segment as tariffs saw a huge dip, much to the cheer of users. Leading the way, Bharti Airtel slashed its long distance rates by 3040 per cent in April 2008. RCOM, Vodafone Essar, Idea Cellular, Tata Teleservices Limited (TTSL) and other private operators followed suit. BSNL too, joined the long distance rate war in June 2008 and announced a 40-50 per cent reduction in mobile NLD rates. In most cases, NLD tariffs averaged Rs 1.50 per minute while ILD tariffs came down to as low as Rs 3.75 to the US, Canada, Europe and Australia.
Resale of bandwidth
In September 2008, DoT permitted the resale of international private leased circuits (IPLCs) or international wholesale bandwidth. According to the regulation, resellers could buy wholesale bandwidth from licensed ILD operators, and sell it to end-consumers such as BPOs, banks and exporters.
While this has benefited those using IPLC for data carriage, major ILD operators such as Tata Communications, Bharti Airtel and RCOM have also been able to increase their target markets through channels they could earlier not tap.
Internet telephony
In August 2008, the government allowed internet telephony. Since this service was already prevalent (though illegally) at rock bottom tariffs, regularising it was an attempt to bring down long distance tariffs even further.
Prepaid calling cards
The sector received another nudge with DoT’s move to allow prepaid calling cards for long distance services. Analysts believe that the move will impact tariffs in a selective way. While call rates to leading countries like the US are already competitive (at about Rs 5 a minute), it can bring down call rates to Europe, Australia and the Gulf countries. For instance, calls to Australia cost about Rs 10 per minute even when the distance from India to the US and Australia is almost the same.
The move is, however, not likely to impact telecom operators much as ILD contributes less than 3 per cent to their re enues. Long distance traffic accounts for 10-20 per cent of service providers’ revenues and ILD accounts for a mere 15 per cent of this. According to operators, NLD rates are already very competitive.
Major players
For a long time, the long distance segment had remained a public sector monopoly of Tata Communications (100 per cent owned by the government until 2002 when it was still VSNL) with call rates being amongst the highest in the world. However, with the government opening up the NLD space in 2000 and ILD in 2002, private operators like Airtel and RCOM joined the fray.
Still, the predominant presence of Tata Communications in long distance (primarily through ILD operations) remains unchallenged. It accounts for over 31 per cent market share (in terms of traffic volume) followed by Airtel’s 25 per cent, RCOM’s 15 per cent and BSNL’s 14 per cent.
While the individual consumer segment is dominated by domestic operators, it is the enterprise segment that has become highly competitive with the entry of global telecom companies including AT&T, Orange Business Services, Verizon Wireless, BT and Cable & Wireless. Most of these players entered the long distance market in 2007 after the lowering of the entry fee, with AT&T being the first foreign player to get a long distance licence and to launch services in 2008. These international operators have recently formed the Association of Competitive Telecom Operators to lobby with the Indian government on the deregulation of ILD licences, the removal of double taxation on data services and a wholesale price regime for international connectivity in order to be able to compete with domestic long distance carriers.
Key trends
The series of amendments made by the government in the long distance regime has led to an increase in long distance traffic as tariffs have continued to move southwards.
NLD rates, which at one time were as high as Rs 30 per minute, have today come down to Re 1 and are likely to fall further with the introduction of voice over internet protocol (VOIP) telephones. As domestic operators increase their overseas presence through their own submarine cable networks and through revenue-sharing tie-ups with international operators, ILD tariffs will also witness a fall. In June 2009, Airtel slashed its ILD charges by 18 per cent with calls to select countries in the Middle East being reduced from Rs 8.50 to Rs 6.99 per minute.
In terms of revenues, both the NLD and ILD segments witnessed a substantial increase in 2008-09 despite the global economic crisis. Year-on-year, NLD and ILD revenues increased from Rs 97.32 billion and Rs 115.32 billion respectively in 200708 to Rs 144.32 billion and Rs 150 billion in 2008-09. However, during the quarter ended June 2009, ILD revenue declined to Rs 22.15 billion from Rs 22.47 billion in the quarter ended March 2009. NLD revenue during the same period increased, though marginally, from Rs 40.22 billion to Rs 43.8 billion. Analysts attribute the low quarterly revenues to DoT’s move to audit the accounts of some of the major telecom companies such as Bharti Airtel, Vodafone, Idea Cellular and TTSL.
Total traffic has also been hit. The proportion of ILD traffic has decreased from 0.51 per cent of total voice traffic to 0.47 per cent in the quarter ended March 2009. NLD traffic’s share too has come down from 13.16 per cent to 12.89 per cent in the same quarter.
However, in order to tackle increasing competition, domestic operators continue to expand their long distance service portfolio and introduce innovative tariff plans. Airtel, after establishing its dominance in the domestic market, is now planning to compete with international operators like AT&T and Sprint Nextel, and has unveiled its global wholesale service portfolio with a network that will reach 50 countries across Europe, North America, Africa, Asia and Australia. The company has already invested $500 million on building cable capacity, network infrastructure and international points of presence.
RCOM has recently launched calling card portals targeted at expatriates from specific South Asian countries living in the US, Europe and other parts of the world. The company is believed to have received a good response and a high recall of its portals amongst target communities.
Concerns remain
While the market for long distance services is getting bigger by the day, some hurdles have surfaced. Quality of service and customer focus and support are yet far from international standards.
On the regulatory front too, some key issues linger. DoT has deferred its plan to do away with the double taxation structure that international telecom carriers are subjected to in India. At present, foreign operators are required to pay licence fees twice ?? while buying bandwidth from domestic operators to use the latter’s infrastructure and while reselling it to enterprises and their customers. Operators have been demanding the removal of such a tax structure. DoT is likely to soon ask TRAI for its recommendations on the issue.
With continuous effort from operators, entry of fresh competition, and a better policy framework, the long distance market is likely to scale greater heights and have a promising future.
Going forward, operators able to provide services of better quality and with wider network reach are the ones who will keep ahead in this business.
