Will OneIndia help telephony spread?

DEBATE

Mahesh Uppal
Director, Telecommunications and Computer
Information Systems

Communications Minister Dayanidhi Maran's vision of a uniform calling rate across India seems attractive and consumer-friendly. However, this "OneIndia" rate, if implemented in the current environment, could distort, if not derail altogether, the telecom reform process.

The problem is not with the vision per se, or even, the fact that the Telecom Regulatory Authority of India (Trai) Act gives him no powers relating to tariffs. It is with the implicit priority given to something so peripheral.

Many overseas operators offer a single rate for calls across the country. They do it for competitive advantage since customers are less inhibited by the usually complex tariff plans and are probably more inclined to use the service. However, almost everywhere this rate is market determined, and not mandated by policy or regulation.

Progress in technology has lowered the cost of long-distance carriage of signals to zero. If markets were truly competitive, long distance calls would be priced no different from the local calls. Governments and regulators have little role in the "death of distance". The most enlightened let markets take their course.

Although the prices have fallen steeply, Indian long-distance calls are appreciably more expensive than local calls because of specific regulatory measures that increase costs.

The access deficit charge (ADC), which is levied on all mobile and long-distance calls, adds typically 15 per cent to their cost. Having compulsorily to go through a national long-distance operator (NLDO) and paying for it, adds further to the cost.

A OneIndia rate would probably mean an intermediate common price for local and long-distance calls. Higher local charges will not only be politically sensitive but also a dubious way to deliver the convenience of a single rate for India to consumers who hardly make long-distance calls.

For its part, BSNL is unlikely to move to such a regime on its own. Its revenues from ADC (about Rs 5,000 crore) and surpluses from long-distance services (about Rs 3,000 crore) are still significant, and to lose them in one go would make little sense.

The situation of the private operators is slightly different. They may well move to the new regime on their own if some of the recent tariff plans, that is, single long-distance rate all over India, are any indication.

A lower OneIndia rate at this stage requires that the ADC regime is abandoned and merged into the Universal Service Fund. This may not be easy. The minister has, in the past, frequently justified BSNL's right to receive ADC.

The only way to avoid raising prices in the short run then would be to use the surplus of the sector, particularly BSNL's, to largely benefit the urban middle-class users of long-distance telephony.

A back-of-envelope calculation suggests that for BSNL not to lose money would require long-distance usage by almost five times or local charges to double.

Both are unrealistic. The OneIndia rate will further deplete the funds so desperately required in areas where the reform is already a virtual failure.

There is much wrong with BSNL's bureaucratic approach to rural operations and with the ADC regime biased in its favour, corrections are required. But, moving to the OneIndia rate, for no larger policy goal, when the advantages are largely confined to a minority, is inexcusable.

An early OneIndia charge will effectively mean the end of separate long-distance licences and soon after, the end of circle-wise licensing. This is a desirable goal. However, reconciling the rights of existing licensees who have paid for these licences may not be easy.

It would be an exaggeration to say that there is a market failure in long-distance services, although there are still admittedly some distortions.

The Trai needs to act to remove these. Market failure is serious, however, in rural communications, where intervention from the government or regulator needs a greater priority than the OneIndia call rate. The high costs and low revenues in rural areas have deterred private investors.

A central goal of regulation in India would have been to help correct the market failure in rural services, and not allow the surpluses of the sector to subsidise the middle-classes. About $ 5 billion has been invested almost entirely in the urban mobile business.

A successful reform process would have substantially increase the flow of investments in areas of potential market failure. To do so without distorting markets is the challenge before economic regulators. But, this OneIndia charge may do the exact opposite.

T V Ramachandran
Director General,
Cellular Operators Association of India

Where STD dialing and charges don't apply, where Indian telecom is not broken up into fragments by narrow licensing walls...into that heaven of freedom let Indian consumers awake." This is the inspiring vision (à la Rabindranath Tagore) of Union Minister of Communications and IT Thiru Dayanidhi Maran, which may soon become a reality.

OneIndia will indeed be a path-breaking initiative in the country's telecom reform process. In fact, the current situation in India is anomalous to the majority of the world, and demands the removal of artificial barriers between service areas to make calling, from one end of the country to the other, easy and affordable.

The initiative will strongly serve consumer interests through lower tariffs, improved business, professional productivity, ease of dialing and improved call quality through reduced traffic congestion. It would have a multiplier effect on the economy and serve as a catalyst in boosting industry and GDP growth.

Separate licenses for different circles and the absence of seamless connectivity are a result of our telecom legacy, which may have been relevant or even necessary in the analogue age when there was some relationship between distance and costs, but is a complete anachronism in today's digital age.

In the current era, artificial licensing barriers between services only degrade the quality of service, add to switching elements, inflate costs and increase customer tariffs.

Recently, with an over 70 per cent reduction in tariffs of domestic leased-line circuits, the Telecom Regulatory Authority of India (Trai) loudly proclaimed the "demise of distance" in the country.

Leased-line circuits are the predominant raw material in carriage, and with a 70 per cent reduction in leased-line tariffs, the current regulatory carriage cost of Rs 1.1 a minute for distances over 500 km can be brought down to 35 paise a minute or even less.

The communications minister announced the first step towards making OneIndia a reality in May 2005, when he demolished the barriers for intra-state calling in four states. Customers are now waiting for the logical second step, that is, the extension of the facility across the nation.

All these years, India has been completely out of sync with the rest of the world with regards to long-distance telephony. Compared to over 620 long-distance operators in the US, 20 in Australia and about 10 in France, Chile and the Philippines, India has only four national international long-distance operators (NLDOs).

OneIndia will help correct this anomaly. The lower cost of carriage needs to be leveraged through more competition to benefit consumers in a significant way and, ultimately, the industry.

However, as for any bold and radical reforms, there will be naysayers. Some of the objections we hear are that the national long-distance business case may be adversely affected, putting the NLDOs in a disadvantageous position. In all fairness, while we should fully address the concerns of the NLDOs, one needs to consider the greater good of the larger number.

Significant benefits to the consumers, the economy and the country at large should not be denied for the sake of protecting the business case of two or three NLDOs.

In fact, without the government needing to make a pay-out, the NLDOs could be fairly compensated by providing them relief through reduced licence fee for some years, and through similar measures. There are several precedents to such government action in recent years.

Another big misconception is that the creation of OneIndia may adversely impact the access deficit charge (ADC) subsidy to BSNL, which helps it meet its social objectives. This, again, is an incorrect argument. Trai is already considering the introduction of a revenue-share ADC regime, which would protect ADC inflows to BSNL.

Another argument is that OneIndia will only help larger players. In fact, the opposite may be true. The initiative will surely benefit the smaller regional players, who would then have the freedom and flexibility to choose optimum and the most cost-effective media for the carriage of customer calls.

On the whole, OneIndia will take the Indian telecom reform process to the next level. The removal of the STD barrier and "0" dialing would give a strong boost to long-distance traffic and have a multiplier effect on economic activity and GDP growth.

OneIndia could, thus, act as a launching pad for achieving and excelling the national objective of 200 million mobile subscribers by December 2007.