Usher in the new

The Telecom Regulatory Authority's increase in telephone rentals and local call charges, will adversely affect a large cross-section of the subscribers. But there are powerful reasons for the rebalancing of tariffs. Cross-subsidisation needs to be eliminated as the industry opens up, otherwise long-distance competitors would be able to price their services much below those offered by state companies. The same logic applies to the reduction in user charges for leased lines, as business users would be the prime targets for private operators intent on cream-skimming. However, costs in this regard have been highly exaggerated. Costs of switches have declined, as have the prices of telecom hardware the world over. Besides, the use of fibre optics in high density areas also brings down the cost per line. Basing the tariffs on current costs, that too the bloated costs of state monopolies, may not be rational. Tariff rebalancing is no doubt necessary, but that could have been done without increasing local callcharges, provided the inefficiencies in DoT were eliminated. A shift to a monthly billing cycle would also have definitely improved cash flows and reduced the working capital needs of the service provider. Stiff penalties needed to be imposed to ensure quality of service.

Trai should also have introduced the efficiency factor into its price cap by using the price index minus X formula followed in Britain, where prices are allowed to be revised in response to the increase in the price index less a deduction for improving efficiency.

The hikes will enable the telecom provider to recover his costs in half the present period. And studies have proved that demand for telephone connections has low price elasticity, so the argument that higher rentals will affect the ideal of universal service will not wash. The move will be a bonanza for corporates, which had for long been subsiding the domestic users. The 90 per cent slashing of the leased line tariffs should now have corporates jumping for joy as instead ofpaying Rs 11.25 lakh per annum for a 1000 km leased line of 64 kbps, it would now pay as little as Rs 96000 per annum for the same facility. Besides the corporates, another set of players that is set to gain from this change, are the Internet Service Providers and cellular operators, who will now find it more economical to lease circuits from DoT instead of building their own networks.

While the changes in the tariff structure point to a resolve to go ahead with telecom reform, it needs to be underscored that the objective of reform is to lower costs in telecommunications. The pressure on tariffs will only occur once free competition, with fair interconnection charges, becomes a reality.

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