The Telecom Scenario: War Between Monopolies

Currently, there is war on between the various telecom lobbies. The basic service operators and cellular operators are on two sides of the divide, slugging it out on issues such as limited mobility or calling party to pay principle for mobile phones. However, a number of operators are both in basic services as well as in cellular services. The recent spate of mergers and acquisitions show that what we have is the formation of monopolies in telecom. On one side is Reliance, which is trying to emerge as the largest telecom player in India. On the other side are the Birla -AT&T-Tata-BPL combine (Batata-BPL), the Bharati group (Mittals), and the Hutchisons, a Hong Kong based conglomerate. The issues and the stand that the various combines are taking are symptomatic of the larger battle for control of the telecom sector in India. Once VSNL and BSNL are privatised, the stage will be set for abandoning all talk about competition. The real aim of telecom reforms – handing the telecom sector over to private monopolies — will then emerge in its true colours.

The recent auction of the 4th cellular license — 4th license as BSNL presumably is the 3rd license holder even if it has not got its act together – confirms this trend. Bharati has emerged as the highest in 7 circles out of the 13 and is certain to get at least 5 licenses. Hutchison and Batata are close behind. Bharati has also acquired Spice cellular, the existing Kolkata operator. The total license fee or entry fee that the Government is likely to collect is about Rs.1500 crore. It has been argued that allowing WiLL for basic service operators have led to lower entry fees being quoted.

While the battle over who controls the telecom sector in India is the real one, we also need to address actual issues over which these battles are being fought. The first is using Wireless in the Local Loop (WiLL) for providing limited mobility; the second is the Calling Party to Pay (CPP) regime. The cellular operators have led a vigorous campaign in the media charging the Telecom Regulatory Authority of India (TRAI) with partiality and the Government with being in league with Reliance. They have also argued that as the basic service operators have been permitted to provide WiLL, they in turn should be given the concession of the CPP regime. A connected issue is additional licenses for basic services in which wireless bandwidth is being offered on a “first come first served” basis. In this din, the consumers’ voice has been completely shut out.

The National Telecom Policy had envisaged a competitive regime in telecom and a technology neutral regime. Translated into common English, it meant that more players would be allowed to enter the telecom sector and they could bring in any technology they want. The policies till then had restricted the number of cellular operators in each telecom circle (and the metros to two) and in basic services to a second operator apart from DoT/MTNL. One of the arguments given by the telecom lobby and the Government during the migration debate was that the license fees needed to be waived to facilitate competition allowed by NTP 99. While the private cellular telecom operators welcomed competition in theory, threatened with actual competition, they took a completely different tack.

What exactly is this WiLL issue that has raised so much furore? The basic service licenses contained the provision that the operators would have to provide WiLL to connect the telephone handset, obviating the need to lay physical cables up to the subscribers’ homes. The basic service operators now want to extend this and provide mobile handsets instead of fixed ones. The cellular operators are arguing that the basic service operators should either be restricted to a fixed instrument using WiLL or they should pay the entry price for a cellular license. The problem with this argument is that the fixed instrument in the subscriber premise is identical, in technological terms, to a mobile cellular instrument. Restricting the basic service subscribers’ handset to a fixed option therefore militates against the optimum use of current technology. Once a handset can be made mobile, it is neither feasible not logical to restrict the subscriber artificially.

The limited mobility issue did not arise with Reliance as is being propagated by the cellular lobby, even if they are piggy-backing on MTNL and DoT (now BSNL) who raised it earlier. It started with MTNL offering a limited mobility service by which a subscriber was offered a mobile handset at the same cost per call as a fixed one. This led to the cellular operators asking the TRAI to intervene. TRAI, under Justice Sodhi, had then ruled that there was an element of subsidy that such service would enjoy. Consequent to the migration from a fixed to a revenue sharing arrangement, the Government asked TRAI to give its recommendations on this issue again. TRAI recommended that limited mobility be allowed to basis service operators, albeit restricted to a single cell; it also reduced various costs for the cellular operators to establish a “level playing field”. The cellular operators contend that the field is still not level and have gone against TRAI’s decision to the Telecom Disputes Settlement and Appellate Tribunal.

The cellular lobby launched a very high decibel level campaign against TRAI’s recommendations and its acceptance by the Government’s. The cellular operators initially tried to get a stay of the limited mobility decision of TRAI in the Tribunal. Failing this, they went into a campaign overdrive, using both the media and political forces within the Government leading to the Government appointing a Group of Ministers to examine the issue.

One of the failings of this Government has been that it has set up procedures and expert groups to advise on certain decisions and promptly gone back on such recommendations. The Group on Telecom set up for formulating the New Telecom Policy – NTP 98 – had recommended against transferring existing license holders to a revenue sharing arrangement. This was later over-ridden by the Cabinet after taking an opinion from the Attorney General. The CAG has faulted both the Government and the Attorney General for this change of decision, a decision that helped the cellular and the basic service operators. The appointment of a Group of Ministers was a similar exercise to try and reverse TRAI’s opinion on the limited mobility issue and appease the cellular lobby. Having set up TRAI and the Tribunal as an appellate body, the appropriate forum to argue out the limited mobility case was the Telecom Tribunal and not the Group of Ministers. Fortunately, the Group of Ministers did not reverse the TRAI decision but did provide some more “relief” to the cellular operators.

Beneficiaries of the PMO’s activism last year in the migration from fixed license fee regime to a revenue sharing one, the cellular operators now feel that the PMO was supporting their rival business lobby. With the current ethos of governance, it is certainly possible that many of these decisions – right or wrong — are accompanied by favours. The tehalka tapes have removed whatever innocence the people may have had. The question here is whether the limited mobility decision itself has merit or not, leaving aside what else may have accompanied it. The other related issue is that if wireless bandwidth is a scarce resource, should it be offered on a first come first served basis for providing WiLL services by the basic service operator?

The cellular operators charged that the basic service operators are going to subsidise their limited mobility operations from the long distance revenues. According to the cellular operators, it is this subsidy that explains the large difference in limited mobility charges – Rs.1.20 for three minutes as against cellular charges of Rs.2.80 for one minute. Unfortunately the cellular operators have yet to explain why their should services be priced 6-8 times that of the basic service operators when the capital cost is Rs.4,000 per cellular line as against Rs.23,000 per landline?

While limited mobility can be supported on both cost and technological grounds, it is difficult to understand the logic of a first come first served basis for allowing scarce wireless spectra to be hogged. Instead, this should have been used to enforce a faster rollout of the network and rural telephone services. Lest people forget, the entire raison d’etre for introducing private operators in basic services was to provide rural telephones. Giving spectra away in this cavalier manner is a continuation of the bumbling approach that has led to two telecom policies in the last six years

CPP Regime

Subsequent to the failure of the cellular lobby in getting the WiLL scheme scrapped, it has asked the TRAI to expedite the CPP regime which had been struck down earlier by the Delhi High Court on the grounds that TRAI did not have jurisdiction under the Act. With the modifications to the TRAI Act, this objection is no longer valid.

The TRAI issued a consultation paper last month on the CPP regime. The current regime in place is that if a subscriber calls from a landline to a mobile phone, the airtime charges are paid by the owner of the mobile phone while the party calling from the landline pays only the local call charges. The important question here is that the average local call charge is Rs.1.20 for 3 minutes while the airtime charges are of the order of Rs.6.00-8.00 for the same three minutes; the airtime charges/cellular rates in India are 6-8 times that of the landline local call rates. Under the CPP regime, the additional airtime charges that the landline subscribers will have to pay for calling a mobile phone is of the order of STD charges and not local call charges.

The world over, the local cellular rates have come down drastically and are almost comparable to local call charges. The premium today – in terms higher rates for mobile services — is of the order of 20-30%. TRAI and others have argued that most countries are going in for a CPP, as it is a more convenient regime. It can be argued, with perhaps more justification that the move towards a CPP regime is due to cellular rates coming down and its near parity now with the landline rates.

The drastic fall in cellular rates has been due to the expansion of cellular services with the attendant economies of scale. As per the current tender prices of mobile switches, the cost per line is of the order of Rs.4,000 per line for cellular services as against the cost of Rs.23,000 or so for landlines. The original tariff computations for the current cellular tariffs are based on cost per line of Rs.40,000 i.e., 10 times the current costs. When these tariffs were computed, various organisations had questioned the figures furnished by the cellular operators. Unfortunately, TRAI accepted them without any application of mind leading to such distortions in cellular and landline tariffs.

If the cellular rates are reworked based on actual costs, they will become comparable to that of landlines. Not only are the capital costs much lower than that of landlines, the license fees of the cellular operators have also been waived. In any case, the metro cellular operators paid very low license fees and therefore cannot use license fees  (treated now as entry fees) as an argument for high cellular rates. If the cellular rates come down to levels comparable to landline rates, as they have in various countries, the CPP regime will not be unduly onerous for landline subscribers.

The rapid growth of mobile phone subscribers has been due to the advantage of mobility. Even with the high cellular rates, there is no stagnation in terms of the subscriber base. Certainly, there will be a further expansion of the cellular base if the rates are brought down. The right way of expanding the subscriber base is bringing down the exorbitant cellular rates and not by passing a portion of this on to landline subscribers.

There are serious grounds to believe that the cellular operators in Delhi and Mumbai have been acting on collusion in announcing their tariff plans. There have been  “strange” coincidences in timing and the tariff plans of the Delhi and Mumbai cellular operators.

January 18, 2001: Hutchison Essar cuts cellular tariff in Delhi, the next day, Airtel followed suit

February 14: BPL and Orange reduce tariff

May 30: BPL, Orange announced fresh rate cuts in Mumbai

Both the operators — Hutchison Max and BPL — announced an airtime rate of Rs.1.49 per minute for both incoming and outgoing calls, at the lowest end of the tariff spectrum, on May 30.

(Financial Express 5th June 2001)

The response of Mr. P.K. Sandell, President of Telecom Industry Service Association (TISA) in the same report virtually confirms that cartels exist amongst cellular companies; he has termed fixing of rates “business agreements” instead of formation of cartels.

The same coincidence exists in Delhi in terms of timings and tariff rates announced. Essar and Airtel have announced very similar tariff plans on 9th June and 11th June respectively in Delhi.

Even after the latest round of rate reductions, the cellular tariffs remain much higher than the landline rates. It is clear that collusion and cartels between operators are defeating competition and ripping off the subscribers. TRAI should focus on the exorbitant cellular tariffs instead of peripheral issues such as CPP.