Pricing power

Telcos should not give up freedom to set tariffs

All three private telecom operators, who are rarely on the same page on any issue, have together asked the sector regulator, the Telecom Regulatory Authority of India (Trai), to set floor prices for mobile data services, while retaining voice calls under the ongoing forbearance regime. In practice since 2003, forbearance implies that telcos are free to fix all tariffs other than for national roaming and fixed rural telephony. Shifting to a floor price regime would mean no company will be allowed to offer tariffs below the mark set by the regulator. In a letter to Trai, telcos said tariff correction in the current level of fierce competition was not possible by any service provider voluntarily and, therefore, the only option available was prescribing a minimum tariff for mobile data service by the regulator.

By asking Trai to intervene, the industry is giving up its power to set tariffs for a service that is already a driving force in many ways, and will only grow in significance. That’s a wrong call when tariffs are controlled by market forces across most sectors in mature economies. Any shift will be anti-consumer and against the principle of the free market. Also, the telcos’ decision to seek two sets of norms — for voice and data — is flawed. In their submission, the operators have argued that unlike in the case of mobile data, voice is considered an essential service for subscribers, mainly at the bottom rung. That, according to the industry players, explains the need for voice to remain in the present forbearance regime. However, the truth is that mobile data, which enables free messaging on apps like WhatsApp, is as much an essential service as voice not just in urban areas but in rural India as well. Not only that, telcos often sell voice and mobile data packages together, and any data floor price will come with the risk of distorting the free market principle.

At a time when the industry is on a weak wicket due to the financial stress, made worse by the recent Supreme Court verdict on adjusted gross revenue (AGR) with an estimated Rs 1.4 trillion demand in past dues on telcos, they must refrain from surrendering their tariff-setting power. Indeed, the duress in the telecom industry was captured in industrialist Kumar Mangalam Birla’s statement last week when he said Vodafone Idea would have to shut shop in the absence of government support. While the government can step in by allowing staggered payment of the AGR dues and waiving some penalties, so that the telecom industry does not become a duopoly if not a monopoly, the regime of forbearance for tariff, both for voice and mobile data, should not be changed. There’s no reason why the industry players themselves cannot be more responsible in setting tariffs. Recently, all three players raised tariffs after several years. Therefore, asking Trai to set a floor price for data seems to be an irrelevant demand.

However, this is not the first time that the industry is looking for a regulatory intervention in setting a floor price. In 2017, after Reliance Jio disrupted the market through freebies, some incumbents had sought floor prices for both voice and mobile data services. At that point, Trai rejected the proposal, saying floor price wasn’t a workable idea and that prices under forbearance should continue. Trai should take a similar stand now.