People’s Democracy (Weekly Organ of the Communist Party of India (Marxist)

Vol. XXVIII No. 07 February 15, 2004

MOBILE
OPERATORS CARTEL

Will
TRAI Act or Allow the Loot?

Prabir
Purkayastha

 

WITH
the increase of cellular tariffs by about 15-20 per cent by all major cellular
operators except BSNL soon after they have received fresh concessions on revenue
sharing and lower interconnect charges, it is now clear that we have a cellular
cartel operating. The TRAI, in announcing the October order on interconnect
charges, had predicted a drop in the cellular rates as the modified interconnect
charges, barring a few cell-to-cell long distance segments, had come down. The
plea given by the operators is precisely the opposite: the excuse given for the
current round of rate increases is changed interconnects charges. The
synchronisation of the rate increase also makes it transparent that the
rationale for not regulating cellular tariffs given by TRAI – there is enough
competition between cellular operators, which will automatically lower tariffs
— is not working.

 

SOPS
TO THE CELLULAR
INDUSTRY

 

There
is another reason that the cellular tariffs should not have increased at this
time. Arun Shourie, just three months back, has given further sops to the
cellular industry. This consists of a 2 per cent across the board reduction of
their revenue share to be paid as license fee and a further reduction by 2 per
cent to the first and second cellular operators. The total bonanza given to the
cellular operators per year is Rs 968 crore. If this were not enough, the
minister also rasied the ceiling on foreign investment in telecom companies to
74 per cent from the current 49 per cent, effectively allowing the current
owners of these companies to get huge windfall profits by selling their shares
and control to foreign capital.

 

The
argument for giving such “benefits” from the public exchequer was that since
the government had allowed Reliance to violate all the rules of the telecom
licensing and allowed it to offer fully mobile services masquerading as limited
mobility, the cellular operators needed to be compensated. If all that Reliance
received for violating the license conditions was a gentle rap on the knuckles
– a penalty of Rs 485 crore – the government had to gift them something in
return as well. And for a government bent upon making the Indian capitalists
shine, what else but dipping into the public revenues to “compensate” them
for the government’s earlier favours to Reliance. If carpet bagging is the
name of the game, why should the Bharati’s and other cellular operators bags
not be filled as well?

 

INTERCONNECT
CHARGES

 

Coming
back to the slightly complicated matter of interconnect charges. In an earlier
age before mobile phones came in, the basic principle when two operators were
interconnected, was that each party keeps the revenue of the calls originating
within its network. The argument was that the number of calls from and to each
network balance out, as also the costs and therefore we need not look at revenue
share of each particular call. This was the calling party to pay regime.
However, this basis changes if the regime is not calling party to pay and if
there are networks in place that are technologically different, for example a
mobile network connecting to a fixed network.

 

The
mobile tariff regime in large parts of the world was based on that the mobile
party would pay for the airtime while the other component would be borne by the
calling party. This meant that for any call originating within the fixed to the
cellular network, the fixed line user would pay the normal fixed line charge and
the difference in cellular and fixed line tariff to be borne by the mobile user
as airtime charges. The cellular operators would also pay an interconnection
charge to the fixed line operator for each call made to the fixed line user.
This was the genesis of the interconnect charges, which was premised on the
mobile services being a premium service and therefore the rates being higher
than the landline rates.

 

This
whole premise came into question when the cellular network costs dropped
dramatically and became roughly similar to the fixed line costs. If we take away
the differential rates for mobile and fixed line services, the earlier complex
regime can then be dispensed with a much simpler regime roughly on par with the
regime that was used before the cellular networks came into place. 

 

The
regulatory regime that TRAI was putting in place had also to address another
question. With the long distance portion of the network becoming an independent
service, the local network, which was earlier paid for partially by the long
distance revenue, was now no longer viable. In other words there was a deficit
in local calls and rentals, if they were to be paid for by only the local call
revenue and a small part of the long distance revenue that was the share of the
local operator. TRAI tried to correct this by imposing a high interconnect
charge for all calls terminating on to the local network from either cellular or
long distance operators. This led to a situation that the cell-to-cell long
distance calls or calls within one network became much cheaper than calls from
fixed line to fixed line phones or long distance cell-to-fixed line phones. The
net result was that financially the position of the land line operators,
primarily BSNL was becoming unviable.

The
unified license regime and uniform interconnect charges that TRAI has now
introduced does away with a large part of the above anomalies. TRAI has also
corrected its earlier figure access deficit for BSNL from the earlier
unbelievable Rs 12,500 crore to about Rs 5,300 crore. The current regime evens
out the differential between long distance calls made from either land or mobile
phones and therefore makes the competition between the mobile and landline
operators far more balanced. However, it is this pretext that the cellular
operators have now seized to argue for a rate increase for mobile users.

 

The
tables below show the difference between old and new rates. As can be seen, in
all cell to fixed line calls, the interconnect charge (interconnect charge here
is a composite of what the TRAI calls the termination, carriage and access
deficit charges) has gone down and not increased. The cellular operators
however, for all long distance calls have increased these rates by almost a
rupee. While the cell to fixed interconnect rates have also remained constant,
again these are the rates that have been hiked up by the cellular operators.

 

IUC
Payable Old and New for Different Type of Calls

Table
1 Local Calls

 

Table
2 Cell to Fixed Intra Circle Calls

 

Table
3 Call to Fixed – Inter Circle Calls

 

Table
4 Cell to Cell Intra Circle Calls

 

Table
5 Cell to Cell Inter Circle Calls

 

 

STRATEGY
OF

CELLULAR
OPERATORS

The
above increases not only a desire of the cellular operators to hike up their
profits but also a strategy of trying to reduce calls from their network to
fixed line networks. With the size of the cellular market already reaching 30
million as against the fixed line numbers of 42 million, obviously the cellular
operators are in a position of trying to make calling within this segment more
attractive than to other networks. If the rates are not attractive enough, there
is the additional irritant that the mobile users face: calling to fixed line
networks quite often is impossible from mobile phones. There is now an active
policy of discouraging calling from mobile networks to fixed line networks, both
physically or by applying higher rates.

 

This
strategy is obviously not possible unless the cellular operators can come
together and operate as a cartel. This has also been there earlier when the
metro operators kept artificially high rates lowering it only when MTNL and BSNL
entered the fray.

 

The
TRAI had earlier taken a position that as there is enough number of cellular
players, there is no need to regulate this sector. We had pointed out then that
the concentration of the sector was still high and this would make it easy for
cartels to form and operate. It is now clear that the policy of forbearance that
TRAI is practicing with regards to cellular rates is not working and it is
necessary for the TRAI to take cognisance of this and examine the cellular
rates. It is not enough for Dr Seth, member TRAI to show his displeasure and
state that the TRAI had worked out the margins while fixing the interconnect
charges and this did not warrant an increase in the rates. Or will TRAI again
give a gentle rap on the knuckles to the cellular operators as it did for
Reliance’s fraudulent and backdoor entry into the mobile sector?