India Telecom

September 9, 2002
Telcos warm up to ending rate war as margins fall, costs rise

Rajendra Prabhu

NEW DELHI -- The price war in cellular and long distance services is beginning to bite and telcos are eager to call for a respite and take a re-look at the whole issue. This was evident at the symposium organized recently by the Pacific Telecom Council (PTC) India Foundation in New Delhi.

"The ARPU in cellular services has gone so low that it will take eight or nine years before telcos will begin to make money", says Bharat Sanchar Nigam( BSNL)'s Director (Finance) S.D.Saxena. With 60 to 70 percent reduction in tariffs, "doubts have begun to rise about a sustainable telecom sector" says Umang Das, president of Spice Telecom, a cellular operator. "The issue of viability of cellular services has become a key factor in orderly growth of the industry" Umang Das adds.

BSNL is on the verge of entering almost all telecom circles as the third operator and is expected to give the other operators a run for their money. Communication and IT Minister Pramod Mahajan has declared that he would like to use this PSU to give some lessons in aggressive competition to its private sector rivals.

A recent study by the Cellular Operators Association of India (COAI) has listed Rs 7,000 crores as losses that operators have borne so far on their investment of about Rs 25,000 crores. If the golden eggs don't turn up soon, this level of losses would become unsustainable. Most private sector companies feel that uncertainty over interconnect charges is a major factor in spreading the '''' period. "Thirty to forty per cent of the costs for the cellular operator is on account of Interconnect charges" says Umang Das.

BSNL, which is perceived as the beneficiary of high interconnect rates as it is the incumbent basic services operator with 99 per cent of the connectivity, however, disagrees. Saxena's view is that "unrealistic tariff reductions" are affecting the bottomlines of all, incumbents and newcomers. In basic services, newcomers are giving heavy discounts. Saxena asks whether at this rate they would pay the customer if his calls are beyond a limit? "When rules are defined, we should start playing the game," he warns.

While BSNL, as the incumbent operator, emphasizes a tariff relook, the p-telcos feel that the focus should be on interconnect issues. "Interconnect charges should be cost based" says Umang Das. At present it is a "menu without a price list", he complains. On the issue of the quality of service, the p-telcos views differ from those of the public sector companies. Rival service providers are competing on the basis of a better QOS. But Umang Das says TRAI has to set QOS standards based on "quantifiable parameters."

The role of the regulator being key in the emerging telecom scene, it is natural that both sides to the telecom divide view the regulator's performance as unsatisfactory. Private companies say that the regulator stops at merely stating the parameters of QoS. And beyond that does nothing when there are obvious failures to meet the parameters on the part of the incumbent on whose network all the newcomers depend heavily for their own performance. "There has to be enforcement of the guidelines within a specific time span. The regulator cannot merely issue a statement of intent," Umang Das adds.

There is also the view as Khan says, that the mandated quality parameters are too difficult to achieve like fault rates. If fault rates have to be very low, specifications for the equipment will also have to change. Public sector companies have problems in this area as they are bound by procurement norms that leaves little room for maneuver.

While it is more or less certain that the private sector might not be very enthusiastic about pushing into the rural areas, USO or no USO, the issue is likely to be resolved within two or three years. BSNL has already given telephone connectivity to one lakh villages in the last 12 months while p-telcos in basic service were concentrating on launching their urban services.

Rural connectivity is now substantial, some nine million phones out of 40 million, points out P.S. Saran, former Secretary, Department of Telecom Services. The perception that rural services are loss making, is also not correct, he says. Many franchisees are getting into the business and making it a paying one. "New types of services will be launched that would make the rural services paying," claims Saran, who has 40 years of experience behind him in telecom. He quotes the success of SMS in mobile phone service that is giving 15 per cent of the current revenues of cell phone operators, a factor that did not exist when the licenses were given. Location-based services would be a major money spinner in future.

Saran's advice to telcos is not to get bothered too much by interconnect problems. "It is a global phenomenon. It happened in the UK too. The regulator has to enforce interconnection," Saran says. "The Indian scenario is in fact better," he comments.

On the contentious issue of tariff, both private and public sector telcos are not in reality ranged against each other. Umang Das's warning about tariff reductions affecting long term sustainability of telecom sector is well taken. Saxena says, "Let us have a common strategy on tariffs instead of spoiling the customer" with freebies. "Competition with co-operation will be a better course," he adds. Saran puts in a larger perspective, "Soon the regulator would leave the tariff to be decided by the market."