Pressure On Vsnl To Reduce Rates

US telecom regulators cut in call rates rings in the blues for VSNL with US carriers

The Federal Communications Commission (FCC) decision to slash settlement rates for US international telecom carriers, from some 80 cents a minute to a minimum 15 cents, will put pressure on Indias department of telecommunications (DoT) to reduce the rates for the countrys Videsh Sanchar Nigam Ltd.

The FCC move has upset Indias plans to enter into long-term agreements with US carriers on settlement charges. The decision described unilateral by DoT officials will also give a fillip to callback operators, which offer international calls at lower rates than what charged by VSNL.

The FCC decision means that US carriers will have to comply with the settlement rate benchmarks that it has set for them. The benchmarks which commission officials say are pegged to costs and not the monopoly rent that carriers want to charge will allow US carriers to negotiate individual rates with foreign carriers, but cap the maximum rate they can pay.

This means that in the case of India, by 2003, US carriers will be allowed to pay VSNL only 23 cents (Rs 8.28 at the current rupee-dollar rate) a minute against the 79 cents (Rs 28.44) now. India received $210 million (Rs 756 crore) in settlement charges in 1995, ranking third behind Mexico and China. US carriers paid out as much as $5.4 billion last year, a deficit which is expected to come down to $2 billion.

The US carriers will not pay India at one rate and receive another (lower) rate from India. They will turn on the pressure for sure, an analyst said. In the past the FCC has already successfully taken on Telefonica de Argentina. When the Argentinean carrier refused to accept AT&Ts proposed rates, the commission mandated all other US carriers to match the AT&T offer and the South Americans had to accept the rates. The FCC move also comes as a blow to VSNL efforts to negotiate a long-term agreement with US carriers, AT&T and MCI Communications on settlement charges. The agreement envisaged reduction of settlement charge between India and the US in stages: 79 cents this year, 70 cents in 1998, 58 cents in 1999 and 50 cents in 2000. DoT which is the administrative ministry in the sector has not taken a final decision on the matter.

Already the FCC has been adopting a tough attitude while dealing with US carriers. Commission officials had rejected MCI Communications bid to cobble together a deal with VSNL. The deal looked at arriving at a settlement rate over the next two-three years, but FCC officials believed that it was not consistent with the benchmarks they set. We would like MCI and VSNL to go back and talk further, FCCs telecom division chief Diane Cornell told Business Standard.

With lower settlement rates from the US, callback operators will have a field day. Companies like Kallback take advantage of low international telephone tariffs of one country.

For example, US operators charge a little more than $1 (Rs 35) per minute as against a tariff of some $2.15 (Rs 75) charged by the DoT.

Typically, callback companies purchase bulk time from international carriers at low rates. Subscribers in countries with high collection rates (like India) who want to make international calls call the call-back operator which sets up a call between two numbers, but bills the calling (Indian) subscriber low collection rates of countries like the US.