Call drop penalty norms fraught with glitches: Analysts

The Indian telecom watchdog's decision to penalise mobile phone service providers for call drops is fraught with glitches as it ignores issues like technical hurdles in assigning reasons, poor spectrum policy and obstacles in roll-out of towers, analysts maintain.

On the face of it, Rs.1 penalty per call drop, limited to a cap of three such occurences per day, may not appear steep. A subscriber could get a maximum of Rs.90 per month. But based on average revenues per subscriber, which is Rs.180-Rs.200 for Idea and Bharti, it can prove quite a knock.

"There are also likely to be technical hurdles in implementation. Based on our discussions with telcos, it isn't easy to determine the cause of call drops," said a Nomura report, adding this can be due to limitations in both the originating network and terminating network.

Actions like removing phone batteries or stepping into low coverage areas can also be the causes.

"Anyone designing telecom networks will know that ensuring nil call drops is near impossible for commercial operators. There are several external factors beyond the operators' control that could influence call drops," said Credit Suisse, while also pointing out some technical glitches.

"The new rules mandate that only originating network is to compensate the originating subscriber. It is not clear how the situation is handled if the call drop occurs due to a problem with the terminating network," it said.

A Morgan Stanley report questioned how this can be executed. "The unanswered question is how will the regulator practically implement testing methodology for call drop, as it could imply as much as 50 percent of average revenue per user is at risk for the most unreliable network operators."

Speaking about the existing norms, Deutsche Bank Market Research said mobile companies currently need to achieve less than 2 percent call drops and that tests by the regulators own reports show that companies are adhering to this across most of their operating markets.

"Hence we are perplexed by the move for penalty on a per-call basis. The regulation is likely to introduce another layer of complexity to the operators' billing systems. Besides the regulator has not specified any mechanism to audit the claims which are bound to arise in future."

In its report, the regulator said it had examined the representations of telecom operators, who maintained that some issues beyond their control, like poor spectrum allocation and difficulties in setting up towers, were also contributing to call drops.

But the watchdog said it was for this reason that the the compensatory mechanism has been kept simple, so that the consumers can understand the same easily, and the operators are able to implement it as well. The new norms take effect from January next year.

"Our analysis suggests that potential penalties may have an adverse impact on Bharti's revenues by 4percent and earnings before interest, taxes , depreciation and amortisation by 7 percent. Telcos have the option to challenge new regulations in court," said HSBC Global Research.

Adding to it, Deutsche Bank report said: "The regulation is likely to introduce another layer of complexity to the operators' billing systems. Besides the tekecom regulator has not specified any mechanism to audit the claims which are bound to arise in future."

Some analysts felt, this could also impact on the 4G players.

"Though coverage issues for 4G entrants don't get resolved till the time they have access to 850 spectrum band, new regulations on call drops may help 4G players in the launch phase by managing subscriber expectations relatively better," said HSBC Global Research.

"Furthermore, capex (capital expenditure) for competition goes up and puts them in a situation to focus more on voice, at a time when data is the growing category," it said adding the regulations may also delay the plans of incumbent telcos to re-farm 900 MHz spectrum band for data.

But the representative body, Cellular Operators Association of India (COAI) has not lost hope.

"Our first preference is to engage in a dialogue with the regulator to get clarifications over call drop norms, keeping in mind there is time till December 31. But if no proper resolution comes out of the dialogue, we will have to seek legal help to protect our interests."