WhatsApp causing fall in telcos’ revenues? But calls/SMSes are anyways free!

By: | Published: November 17, 2018 1:34 AM

Trai wants to regulate WhatsApp when telco problems are far greater, and when calls free, can’t blame WhatsApp for fall in industry revenues.

If telcos have moved to a primarily data-driven package that allows 3G/4G customers to do virtually unlimited calling/surfing within each pack, then WhatsApp taking away SMS or long-distance call revenue is irrelevant.

Given how, in the past, Trai has dismissed the pleas of older telcos like Bharti Airtel and Vodafone to impose the same licence conditions as theirs on over-the-top (OTT) players like WhatsApp,it is curious that Trai should want to revisit the issue. More so, since the nature of telephony has changed dramatically since RJio entered the market. Not surprisingly, since Trai is revisiting an old issue, its consultation raises the same issues as was done some years ago when the one-service-one-rule debate first came up.

In a nutshell, the old argument was that since subscribers preferred to use WhatsApp instead of SMS, and WhatsApp calling instead of domestic and international long distance calls, this ate into 12-14% of telco revenues. So, if such a large chunk of the market was grabbed by OTTs who neither paid the government nor the telcos any money, why would telcos invest lakhs of crores of rupees to set up expensive networks for these OTTs to ride on for free?

In itself, this is a valid argument, but that ship has sailed. After RJio’s entry, tariffs have crashed and pricing has changed from per-second rates to ‘unlimited’ or ‘free’ calls provided a fixed amount is paid for use of data every month. If telcos have moved to a primarily data-driven package that allows 3G/4G customers to do virtually unlimited calling/surfing within each pack, then WhatsApp taking away SMS or long-distance call revenue is irrelevant.

Trai is right in saying that investment will be hit if telcos don’t make money, but this is not due to “regulatory or licencing imbalance… impacting infusion of investments in the telecom networks especially required from time to time for network capacity expansions and technology upgradations”. But the reason why telcos are losing money—recall the `4,973 crore Q2 loss declared by Vodafone Idea—is as much due to RJio as it is to a rapacious government policy, and Trai’s role in that is significant.
In order to increase usage, in even the pre-RJio days, telcos priced voice calls artificially low and sought to make this up via SMS revenues. Delivering SMSs costs next-to-nothing since messages are delivered when the network is free, so SMS revenues go directly to the bottom-line. Anything that affected this cross-subsidy, like WhatsApp did, was seen as the problem, but the reality is the pricing model was flawed to begin with.

What really did in telcos was the exorbitant share of their revenues that the government took away through high licence/spectrum charges, and by way of expensive auctions. Apart from not lowering licence/spectrum charges dramatically, Trai’s role in artificially jacking up auction prices is well known. As a result, the share of revenue going to the government by way of recurring licence/spectrum charges and auction-bids rose from 11% in FY07 to 32.4% in FY17—if service taxes are included, it rose from 23.2% to 47.4%. The number is likely to fall from 32.4% in FY17 to 25.4% in FY19, but that is only because there have been no auctions in the past two years as the industry is in deep distress.

So, after failing to lower licence/spectrum charges and playing a major role in hiking spectrum costs, Trai is just trying to shift the blame by focusing on only OTT like WhatsApp. Indeed, not only did Trai summarily dismiss the charges of predatory pricing by RJio, it reduced the Interconnection Usage Charge arbitrarily, as a result of which it becomes even more unviable for telcos to continue to service the bulk of India that is on legacy 2G networks, but that is another story. And it is surely disingenuous of Trai to argue that the only OTTs it is going to regulate are those that compete with telcos. Even if you buy the proposition—in today’s context of calls-free-pay-for-data—that a WhatsApp is taking away business from telcos, what about OTTs like Netflix or Amazon Prime that are adding to telco revenues by giving them a brand-new stream for earning money via data services?

And if a WhatsApp is far more feature-rich than SMS, in the same way that SMS was over pagers—mobile phones offering SMSs is what killed pagers—why shouldn’t this service be offered? In any case, the easiest way to settle this is to ask telcos whether they would, if they were allowed by law, like to offer sans-WhatsApp services. Few would, however, since WhatsApp is now an integral part of what customers want. In which case, let telcos negotiate terms with a WhatsApp — it is unlikely, though, that WhatsApp will pay telcos—why bring in regulation on it? And, in 4G networks, the difference between voice and data has been obliterated anyway.

Regulating WhatsApp is so yesterday when telecom is now about content, about offering better gaming and entertainment experience, shopping, banking, etc. Once again, Trai is guilty of stopping innovation in this space—Airtel Zero was one such scheme, as was the telco plan to leverage their customer base by getting better deals from, say, a Netflix.

What about national security concerns? Telcos have to, by law, offer interception facilities on their calls and SMS to intelligence agencies, but a WhatsApp doesn’t; so,should a WhatsApp be forced to do that, Trai asks? But surely this has to be the concern of the intelligence agencies, not the telecom regulator? And since there is nothing to stop telcos from developing their own version of WhatsApp, the issue is the technology, not whether it is offered by an OTT player or a telco. Trai has a history of mixing up issues while refusing to address the main issue, this consultation paper is the latest example.

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