Column : Need and timing

Written by Rishi Raj | Updated: May 5 2011, 06:08am hrs
Perception is stronger than truth is the commonly held wisdom. If this wisdom is extended to the regulatory domain, it is not only enough that regulators are fair and open-minded in reality but far more important that they are perceived to be so. There are regulators in several sectors, but the Telecom Regulatory Authority of India (Trai) has a special place because not only is it the oldest among the new set of regulators but has also done a lot for bringing about good regulatory practices in the field. Not that it hasnt had its share of controversiesright from its inception until the outbreak of the 2G scam to its aftermath, Trai had its own contributions to the mess.

So, one can safely assume that its recommendations of 2007 were wishy-washy, enabling A Raja to happily tweak them and dole out licences. Similarly, the 2010 spectrum pricing created a vertical split in the industry, with the incumbents decrying it in the harshest words, and the newcomers (Raja licensees) welcoming it. In fact, the R1.76 lakh crore loss to the government due to the grant of new licences was arrived at by the CAG on the basis of Trais formula. Earlier this year, its revised 2G spectrum pricing once again met with a similar response because it had priced spectrum up to 6.2 Mhz and beyond it differently. To cut a long story shortcorrectly or incorrectlya widely-held perception exists in the industry that Trai is pro new operators at the cost of incumbents.

Without getting into the merits of the perception, one can safely make the case that the consultation process that the regulator began last week on the review of interconnect usage charge (IUC) is ill-timed. This does not mean that a review should not happen or that theres no case to discuss if there should be a zero termination cost on operators. What one wants to point out, to borrow a phrase from the Trai Act, is that the need and timing of it is not right. Before detailing the reasons for the same, lets see what the consultation process aims to do. Interconnection charges are the cost that an operator incurs in connecting a call from its own network to another operators network. It is crucial because in a scenario in which there are multiple operators, the absence of an interconnect regime will spell chaos. Two components of IUC are crucial: one is the carriage charge, which involves carrying STD calls. This is transported by only those operators who have a national long distance (NLD) licence. The carriage charge is fixed at a ceiling rate of 65 paise per minute. The other charge is the termination. Here, the network from which a call originates pays a charge to the operator on whose network the call terminatesthe logic being that without the terminating party, the call will not get completed. Last revised in March 2009, the termination charge stands at 20 paise per minute for domestic calls.

The problem is not with the carriage charge because the way the industry has developed, with NLD operators competing to carry STD calls of the operators, has ensured that against the 65 paise per minute ceiling rate, no operator charges more than 30-35 paise per minute. The problem comes with the termination charge because operators that have a higher subscriber base will always gain while the ones with a lower subscriber base will lose, because the balancing out does not happenwhatever low user base the newer operators will have, the bulk of the calls made by them will terminate on the network of incumbents! The problem was always there, but with the coming of the Raja licensees and their poor market share, it has got accentuated. Thus arises the demand that the termination charge should be abolished, something that in telecom parlance is called bill and keep. The moot question the Trai consultation paper asks is whether the termination charge should be abolished for the sake of a level-playing field Broadly, incumbents are opposed and the Raja licensees fully supportive of the move.

The best option would be to have a termination rate and periodically review it, and let the operators themselves come to some understanding on it. Two operators can always reach an understanding not to charge termination from each other and accordingly formulate tariff packages. Any move by Trai to abolish the charge in the name of a level-playing field will instead be perceived as affirmative action on behalf of the weaker operators.

Having said this, the more important questionis the need and timing of the review apt Consider this: the bonafides of the newer operators are currently in question so obviously any data provided by them should not be treated as fully accurate. Their roll out is dubious and Trai has recommended that 69 licences be cancelled. The 2G scam revolves around themthree companies have already been chargesheeted and five executives are in jail. Is it proper to have an IUC review amidst all this, when the major proponents of it are themselves under a cloud The obvious answer is no. A counter-question can be posed: Should the regulator then stop its work until the 2G trial is over Certainly not. It should carry on. Nobody is objecting to a review of the IUC, but at this point of time it is not proper to consult on whether termination charges should be abolished, especially if it divides the industry.