Telecom wars: All arguments fall flat on face of Trai; whose cause is it really serving?

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September 22, 2017 4:10 AM

Any decision of the regulator must satisfy these stakeholders, and if all of them feel they are not going to benefit, then the decision needs to be reviewed as to whose cause is being served by the decision of the regulator.

Tariff argument, technology argument, OTT argument all fall flat on the face of Trai.

The bible of Trai is the Telecom Regulatory Authority of India Act. Like in a court of law a witness has to take a vow that whatever the witness will say has to be nothing but the truth, similarly the regulator is expected to take a vow to further the objectives provided in the preamble to the Trai Act for which the regulator is appointed. The preamble, inter alia, provides to protect the interest of service providers and customers of the telecom sector, and to ensure orderly and timely growth of the sector. Any decision of the regulator must satisfy these stakeholders, and if all of them feel they are not going to benefit, then the decision needs to be reviewed as to whose cause is being served by the decision of the regulator. As appeared in the Economic Times dated September 21, the regulator mentioned “the overarching considerations for taking this decision are consumer interest, the overall industry’s interest, the competition and growth in technology and the benefits that accrue with it and is passed onto the consumer.” The current regulation of Trai on reducing the IUC charge needs to be reviewed against this background.

• Tariff argument for consumer interest: The central concern of Trai seems to be the interest of customers. Customers stand to benefit by any reduction in tariff. But is this exercise is an any way helping that objective? Tariffs are already in the category of forbearance and Trai has upheld tariffs can be as low as zero—as provided by some operators. Moreover, licensing regulations have ensured enough competition in the market and tariffs are going to be driven by market forces. In a competitive scenario, if any operator is not competitive, it will be harming itself because customer has the unrestricted option to port her services to most competitive operator and get benefit of lowest tariffs. However, the only beneficiary of this exercise is saying that it would hardly gain from the IUC reduction as it had already passed on all benefits to customers especially with free unlimited voice calls. It stated that “there is no question of any advantage from the new IUC regulation to them as it has already passed on all the benefits to customers.” If this is the case, how the reduction is going to benefit the customer any further? Therefore, the argument of customer benefit falls flat on the face of the regulator.

• Growth in technology argument: The second argument put forth by the regulator is technology. It stated that “the authority examined that when clear, demonstrable large differences exist in the cost of providing same services, TSPs are not migrating to newer technologies such as VoLTE. The authority is of the view that termination charges work as disincentive to deployment of new technologies such as VoLTE and migration to IP networks by operators. Moving towards BAK will encourage adoption of latest technologies and the deployment of IP-based telecom networks. Since IP-based networks are poised to be the networks of the future for providing telecom services, BAK regime should be seen as a natural facilitator for the development of technology.” While justifying this argument, Trai fails to refer to any clause of the licence agreement which mandates any particular technology to be adopted. Licences are technology-neutral and the choice of adopting the technology is left to the operator. When the licence does not impose any such obligation, why the regulator should be interested in marketing VoLTE technologies? Non-adoption of latest and cost-effective technologies will push ineffective operators out of technology competition and there should not be any need for the regulator to go gaga over or criticise any particular technology.

In fact, the IUC does not restrict the choice of any operator to choose any technology for its own network. Any operator has complete freedom to allow the services on its own network free of any charge and even allow call termination in its network from other operators at zero cost. This will ensure benefit to the customers of the network of all operators and other operators will be forced to follow. Thus, when the licence has not mandated a particular technology, where does the regulator get its authority from the market and enforce a particular technology and justify reduction on the ground to promote VoLTE technology? Therefore, the technology argument also falls flat on the face of Trai.

• OTT argument: Trai feels “it would be virtually impossible for a TSP to compete against cost-effectiveness of an OTT application, if an additional cost in the form of MTC is imposed. The best way for TSPs to compete would be to reduce their cost to the levels of OTT applications while maintaining superior quality. This is feasible if all service providers roll out advanced IP-based networks and bring down their costs, which would also result in MTC becoming redundant.” It is amazing to see such an argument and suggestion from a regulator to licensed operators that they should reduce their cost to the levels of OTT, which is a non-licensed activity. Trai forgot that the cost of licensed activity and non-licensed activity are totally different. Licensed operators are subjected to payment of taxes, licence fee apart from roll-out obligations. It is ridiculous to even compare the cost of providing the services of these two set of operators. Trai has failed in its duty in ensuring a level-playing field between OTT services versus licensed services.

Therefore, the OTT argument also falls flat on the face of Trai. This compels us to think that the exercise serves the cause of which operator? Research and equity analysts have made the following observations: The Business Standard (September 21): Institutional Equities believes that savings on a 100 million subscriber base translate to roughly `30-35 per subscriber per month. If RJio, which has been offering disruptive pricing, moves to reduce tariffs further, the sector could slip into bigger losses. The move will help the company save about `30 per month per subscriber—that translates into over `3,000 crore. The company will have two choices—either use the savings to break even faster, or it could pass them onto subscribers. The Business Standard (September 21): Analyst at CLSA see the cut in IUC boosting RIL’s earning by 8% over FY18-20. The Economic Times (September 21): Credit Suisse: RJio would have incurred `30-40 per subscriber month as net termination outflows. RJio will save this termination charge from October 2017. These findings point out to one operator being the beneficiary of this exercise. But the irony is the same operator itself is saying that it has not benefited at all and there is no scope of any benefit to be passed onto the customer. On the other hand, incumbent operators are criticising the exercise in any case. When no one is admitting to be the beneficiary of this exercise, then whose cause is being served by this reduction?

Narender Gupta
Founder & CEO, Tathya Consulting
Views are personal

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