Telecom regulator TRAI mandating compensating subscribers for up to three call drops in a day is likely to impact pre-tax profit of Bharti Airtel and Idea by up to 7-8 per cent, leading brokerages said even as they expressed doubts over how the policy will be implemented. Telecom regulator TRAI last week mandated that telecom companies from January 1 should compensate users at the rate of at Re 1 per dropped call, with a ceiling of three dropped calls per day (or Rs 3 per day). "The penalty structure is open to abuse. The average outgoing call rate for leading operators is in the range of Rs 0.65-0.70 per min. Many customers are on per-second billing plans. "It is easy for an enterprising subscriber to earn up to five minutes of free calls every day by initiating a call and immediately removing the battery from the phone (or entering an elevator) thereby earning a Rs 1 account credit, and repeating this process two more times a day to stay under the three dropped calls daily limit," Credit Suisse said in a note. Taking an average 4 per cent call drop rate (close to the results of TRAI's latest drive tests), it said the penalty could have about 3 per cent hit on revenues and a 7-8 per cent hit on mobile EBITDA for Bharti and Idea. Deutsche Bank Markets Research estimated that revenue and EBIDTA of Idea Cellular would be impacted by 2.5 per cent and 3.7 per cent, respectively, while the same for Bharti Airtel would be 1.5 per cent and 2.1 per cent. It said the regulation is likely to introduce another layer of complexity to the operators' billing systems. Besides TRAI has not specified any mechanism to audit the claims which are bound to arise in future. HSBC Global Research said the fines imposed are 2.7-times of sector realisations on every minute of voice produced. "In our view, call drop is an outcome of poor spectrum policies, supported by the fact that Indian telcos are way below the global average on spectrum allocations," it said. Estimating Bharti's revenue being impacted by 4 per cent and EBITDA by 7 per cent, HSBC said there could be a case for tariff increase as the penalties would hurt players across the board. Morgan Stanley asked how would TRAI practically implement testing methodology for the call drop. Predicting that telcos may go to court against the penalty, Nomura said it isn't easy to determine the cause of call drops whether it is due to limitations in the originating network, or in the terminating network; or due to some action by the subscriber, such as removing the battery or stepping into a low coverage area, such as a lift or a basement. It estimated a 5 per cent negative impact on EBITDA for Bharti's India wireless segment, and 3 per cent on its consolidated EBITDA. For Idea, it estimated 6 per cent downside. "Anyone designing telecom networks would know that ensuring 0 per cent call drops is near impossible for commercial (i.e., profit-oriented) operators," Credit Suisse said in a note. The new rules, it said, seem to have no link to the old rules where a 2 per cent call drop rate was acceptable to the regulator TRAI. "So, even an operator that is currently meeting the old 2 per cent call drop limit could still end up paying a penalty under the new rules (the hit for such a scenario comes to 3-4 per cent of EBITDA)," it said. While the government's intention is to ensure telcos invest more into their network, both the operators and TRAI have in the past mentioned that the problem of non- availability of tower locations (the perceived root of the problem) is less than 3 per cent of the total tower base. "Thus, even after network investments by telcos, this could remain a permanent increase in the cost of doing telecom business in India," Credit Suisse said. Stating that the definition of a call drop is open to debate, it said if a subscriber enters an elevator, most certainly the call will drop. Also there will be call drop if someone is travelling at speed on a highway\/through a tunnel or even when a subscriber's battery dies (or is deliberately removed) can register as a call drop. While the new rules mandate that only the originating network is to compensate the originating subscriber, it is not clear how the situation is handled if the call drop occurs due to a problem with the terminating network. It becomes even more complicated when dealing with roaming calls and ICR.