MOBILE OPERATORS CARTEL Will TRAI Act or Allow the Loot?

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 1 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?
15th February 2004