Trai tries again

There is a case for looking at all telecom costs in a more comprehensive manner

With the rapid increase in the number of telecom subscribers and the equally large surge in usage, you would expect the costs of calls to keep coming down. And so they have, to levels where they are probably the lowest in the world. Which is why telecom users across the country celebrated when the Telecom Regulatory Authority of India (Trai) mandated a further cut of 10 paise per minute in what are called ‘termination’ charges — or the tariff calls paid by Vodafone, say, to Idea when a Vodafone subscriber calls an Idea subscriber. In effect, this could mean a 10 per cent reduction in telecom tariffs. Users, however, would be well advised to not uncork any bottles just yet. For one, the Cellular Operators Association of India (COAI) is already in appeal against the earlier Trai order which fixed such ‘termination’ charges at 30 paise a minute (the latest order cuts them to 20 paise) — the case has just concluded at the Telecom Dispute Settlement and Appellate Tribunal (TDSAT) and a judgment is expected any day. If the judgment strikes down the earlier ‘termination’ charge as unfair, it is obvious what will happen to the new one.

In any call, there is an ‘origination charge’ paid to the company whose network you belong to, a carriage charge for carrying the call from one network to the other and a ‘termination charge’ paid to the network on which the call terminates. At the end of the day, the dispute is about what costs have to be covered through the ‘termination’ charge. The COAI view is that since companies like Vodafone are spending thousands of crores of rupees to set up new networks (which could get clogged each time there is a call from an Airtel network to the Vodafone network), the capital costs have to be included while calculating the ‘termination’ charge. Trai’s view, on the other hand, is that companies are increasingly not spending on setting up infrastructure (many telecom providers have hived off their telecom towers business, for instance), so the capex is really irrelevant — all the matters is the operating expenses or opex. But what if a company does need to spend capex? Trai’s view is that ‘service providers are free to recover their capex from the rental, and the origination charge that is under forbearance’ — in other words, charge less from others who want to use your network but charge more from your own customers! There are several such instances of differences between the COAI and Trai and, like the previous case of fixing ‘termination’ charges which is before the TDSAT, this case too is likely to end up there. The COAI says that if the ‘termination’ charges are kept too low, it will affect the telephone companies’ ability to set up rural networks (since rural customers receive more calls than they make, the ‘termination’ charge is a big source of revenue here); COAI’s estimate is that a 35 paise charge is the correct one to take care of future expansion costs as well. Trai, on its part, cites the high Ebitda (earnings before interest, depreciation and amortisation charges) margins of telcos to refute this.

There is ad hocism in the current system of fixing cost ceilings. Trai recognises that telcos over-charge on SMSs, but there has been no move to rein these in. Similarly, while fixing ‘carriage charges’ for long distance calls, Trai said it ‘had provided (a) mark up of 25 per cent on the weighted average cost of carriage of NLDOs (national long distance operators) at that time’. While fixing carriage charges for long-distance calls, Trai relied on old traffic data; the use of new data would have resulted in the lowering of long distance carriage charges. In short, any tariff setting has to look at all costs, and not just at parts of the whole. In an ideal world with so much competition, it can be argued that termination charges should be freed up. This however is not feasible as players with large market power (Bharti has the biggest network today) can hike up charges so as to kill the competition. There is, however, a case for looking at all costs, in a more comprehensive manner.