Controversy

Mobile Rate Wars

Convergence Plus Team

India is facing a different war now – a rate war between telcos. Phase two of the war was launched the other day with both Bharti led IndiaOne, and Tata managed VSNL announcing new rates for international long distance calls.

And as if that was not enough of a bonanza for the user, a third operator says he could offer the same service through Internet telephony for as low as Rs. 5 per minute. Both Bharti and VSNL have reduced the international long distance rate by 40 per cent. While the old full rate to the US was Rs. 40.80 per minute, the new full rate is Rs. 24 per minute. The concessional off-peak tariff has also come down from Rs. 36 per minute to Rs. 21.18, i.e., nearly 40 cents. Bharti announced the rate cut first while cutting the ribbon on its ILD service under the banner of Bharti Telesonic. But on the day it was to come into force, VSNL posted an advertisement offering a competitive price for its ILD service. The telecom customer has never before received such a bonanza in reduced ILD rates. VSNL, under Government ownership and management till last January, was the sole carrier of ILD calls with a long-term agreement with the public sector Bharat Sanchar Nigam Limited (BSNL) for ILD carriage valid for 3 years. But BSNL is obliged to use the VSNL channels only if they stay competitive. With Bharti offering a 40 per cent cut VSNL had to match the rates to retain BSNL, its largest client.

VSNL has also consolidated the rates applicable to different areas. All ILD rates except those to neighbouring countries are now in one basket. The only change is in the peak hour slot for different areas. This simplifies the tariff menu, however, the tariff is still above the competitive rates in the US for traffic to India. Even so, from Rs. 40 to Rs. 24 per minute is a dream come true. 3 years ago it was nearly Rs. 60. per minute.

Incidentally this is the first time that the public sector itself is able to play two parties in the private sector against each other and get the best terms for its clients. In effect, the public sector which was apprehensive of what competition would bring, is now convinced that privatization has its benefits even to the public sector.

Competition is fulfilling its promise of lower rates in other areas also. In the Delhi metro circle, the two dominant operators Bharti and Hutch (formerly Essar) have announced a fresh bout of rate cuts. This brings the cellular mobile talk rates down to an average Rs. 1.50 a minute during off peak hours. While this is far above the charge of Rs. 1.20 for a three-minute call on mobile WLL, the cellular operators are stated to be cutting the rates to thwart WLL, which some basic service operators plan as a countrywide service. The apex court hearing the appeal to allow limited mobility on WLL is expected to give its verdict soon. The rate cut for cellular use is probably related to the outcome of this verdict. Internet telephony, the new entrant in ILD, is pushing the rate war to another level. MTNL has announced net telephony rates to the US at Rs. 5 per minute using a special instrument. No need for a PC. However, MTNL is not alone as Data Access, Caltiger and other ISPs are also in the field. The only hitch at the customer end is the additional gear one has to buy.

The fear that the rate war may go out of hand, and ultimately harm the industry itself is widespread. “After all, there is a huge investment in the network, and it has to generate resources,” says BSNL Director, (Finance) S.D. Saxena. A telecom and finance expert with many decades of experience, Saxena says that operators need to generate a consensus amongst themselves. Otherwise, in the heat of the competition, the services themselves could be affected. Taking a line from cricket, Saxena’s comment on the rate war is, “the googly is okay, but body line bowling is taboo.”

Meanwhile, the intra-telco competition is moving into the area of poaching each another’s brightest young minds. Reliance, which is stated to be investing Rs. 15,000 crores in its telecom ventures, is attracting many a talented manager from other concerns. Prakash Bajpai who was CEO of Hughes Tele.com, the basic service operator in the Mumbai metro circle, was the first to join Reliance four months ago. His replacement at Hughes Tele.com, George Varghese, has also quit to join Reliance. Hughes Tele.com is now part of the Tata Teleservices empire, which has basic services in Andhra Pradesh and elsewhere.