At less than two cents a minute, India’s telecom tariffs are among the lowest in the world, making a further squeeze seem improbable. In 2008, however, most telecom operators reduced their mobile tariffs to less than Re 1 per minute, following a trend set by Mumbaibased BPL Mobile, which introduced the “India One Prepaid” offer that allowed domestic long distance calls at a flat rate of Re 1 per minute.
CDMA major Reliance Communications (RCOM) went a step further and brought down local call rates to the lowest in the country ?? Re 0.50 per minute ?? under all its prepaid schemes. Soon, Mahanagar Telephone Nigam Limited introduced local calls at Re 0.99 a minute for both its prepaid and postpaid users, while Vodafone Essar and Bharti Airtel started offering local calls at Re 1 per minute. At present, the average local call tariff is about Re 1 per minute while STD rates are about Rs 2.40 per minute.
For users enjoying this windfall, the communications and information technology minister, A. Raja, promises more. The government is close to finalising a detailed policy and regulatory framework aimed at ensuring a steep reduction in mobile telephony rates. According to the new vision, a drastic reduction to about one-tenth of the prevalent telecom tariff is on the cards, which will bring down local calls to a rock-bottom Re 0.10 per minute and STD calls to Re 0.25 per minute. The prime minister is also reportedly keen about the initiative and has offered support to the ministry.
The government expects operators to voluntarily lower tariffs in a phased manner within the next two years. However, should the need arise, it is not averse to roping in the Telecom Regulatory Authority of India to issue tariff directives.
The government’s rationale for bringing about a further reduction in telecom tariffs, according to a senior DoT official, is that, although industry players claim they are providing telecom services at the lowest rates in the world, these are still many times higher than global standards in terms of the purchasing power parity (PPP) of Indian consumers.
Another consideration may be the need to achieve the ambitious national telecom subscriber targets of 500 million by 2010 ?? and preferably before time. DoT feels that if the level of competition in the sector is stepped up considerably, tariffs will fall automatically.
The government, therefore, recently cleared the way for six new companies ?? Unitech, Datacom (promoted by Videocon), S Tel, Swan Telecom, Loop Telecom and Sistema (the majority stakeholder in Shyam Telelink) ?? to enter the telecom fray by issuing them licences. With six pan-Indian players already present in the country, the number of operators in a circle is expected to double with the entry of the new companies.
Market analysts believe the heightened competition for market share will immediately lead to a tariff tumble. “I see tariffs falling by 20 to 30 per cent, though I expect only two of the new players to survive eventually,” observes Vikas Saraf, head of Essar’s telecom investments.
Others do not agree. Citigroup, for instance, is of the opinion that new players will not have much scope for market disruption since they will have to still play by the old rules and any move they make to undercut prices would make their business model vulnerable.
Existing operators also do not expect tariffs to fall drastically. According to Sunil Bharti Mittal, chairman and managing director, Bharti Airtel, the possibility of further cuts in mobile tariffs is bleak. Rates in India are among the lowest in the world and more new players will not push them southwards. In fact, he is of the opinion that at current tariffs, the new players are going to find it very difficult to make money from the business.
“The government, in its wisdom, is always wanting to lower tariffs. The fact is that nobody in the market is asking for lower tariffs. People are asking for better products and more innovative services. So, with tariffs where they are today, the government should be extremely happy,” Mittal notes.
Meanwhile, pushing for lower tariffs, TRAI has been talking about making it mandatory for operators to offer mobile connections at lower entry costs in rural areas. The move is aimed at making affordable phone connections available to rural subscribers since TRAI is planning to abolish subsidy support ?? in the form of access deficit charges (ADC) ?? with effect from April this year.
“The objective is not to micro manage the market but to ensure that the benefits of the abolition of ADC are effectively transferred. This will achieve the objective of increasing rural teledensity by making the services affordable and bridging the urban-rural divide,” observes a TRAI official.
With the government and TRAI keen to bring down tariffs, the consensus amongst market experts is that over the next two years or so, tariffs will eventually range from Re 0.25 to Re 0.50 per minute.
TRAI steps in
In its effort to bring down tariffs and regulate the number of tariff plans, Telecom Regulatory Authority of India (TRAI) has issued consultation papers to discuss the issues involved.
According to TRAI, the policy framework for tariff regulation has been reviewed and modified from time to time, keeping pace with the emerging competitive market.
As it stands, tariffs are currently forborne except for rural fixed line services, national roaming in mobile services and leased circuits. Service providers have been given the flexibility to report their tariff plans within seven days from the date of implementation, after conducting a self-check with the relevant regulatory principles which include tariffs being IUC compliant, non-predatory and nondiscriminatory. TRAI has also capped the number of tariff plans an access provider can provide in each licensed service area at 25. This includes both post-paid and prepaid plans.
However, competitive activity among service providers has resulted in a large number of tariff offers being made by service providers to acquire and retain subscribers. Since transparency in service provision has always been TRAI’s prime concern, the regulator visited the issue in 2004 by initiating a consultation process which resulted in an amendment to the tariff order in July 2004.
While providing details of TRAI’s initiatives, the consultation paper also analysed feedback from the consumers on market activities that have further intensified with new licensees starting operations and existing operators expanding their networks.
According to TRAI, despite various measures to enhance transparency in service provision and to protect consumer interests, there is a growing feeling of unease among customers that the offers being made by access service providers are not transparent, and are thus not consumer friendly.
TRAI continues to receive complaints from consumers and consumer organisations highlighting intrinsic issues affecting transparency in the tariff offers of access service providers.
Considering the sensitivity of the matter, TRAI has decided to re-examine the regulatory framework governing tariff offers. It has been looking at the various issues arising from the plethora of tariff offers in the access segment and the need to address consumer issues related to it. It has asked for suggestions on how to protect the interests of consumers without curtailing the flexibility of operators in offering tariff plans. The important points under consideration include looking at whether there is a need to further reduce the limit on the number of tariff plans on offer from the existing 25, the need to regulate the number and structure of tariffs offered as add-on packs/value-added services/promotional tariffs, and what further measures would be advisable to improve the transparency in tariff offers.
Meanwhile, in a related development, TRAI has issued a Tariff Amendment Order mandating operators to provide “hard copies” (printouts) of the bill, free of cost, to their postpaid subscribers. The order is applicable across all types of tariff plans of mobile (both GSM and CDMA) and fixed line services.
TRAI has also indicated that mobile operators may be pushing consumers to give up fixed line connections by adopting a policy of charging a higher tariff for cell-to-fixed line calls. It has asked operators to stop the practice since it does not have adequate justification. TRAI has also pointed out that despite a reduction in ADC, operators have not passed on the benefits to consumers.
