The Telegraph
Since 1st March, 1999
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New frontiers in mobile march

New Delhi, Aug. 21: A cellphone rate of 60 paise per minute for both local and STD calls, a monthly rental of Rs 100, SMS at 5 paise per message and no roaming charges: is this a make-believe world for mobile phone users'

Whether this is a mere chimera or an actualising Utopia depends on a crucial factor ' regulatory intervention.

Cellphone service providers have the freedom to charge any rates they want. The regulator ' the Telecom Regulatory Authority of India (Trai) ' has a term for it called forbearance. Basically, the idea is that the market is the only dynamic, which should determine the tariff structure in a world that is fast telescoping distances and relationships.

When the country’s first cellphone service was launched in Calcutta on August 23, 1995, the call rate structure was a huge deterrent: with an outgoing call rate of Rs 16 a minute and an incoming call rate of Rs 8 a minute and cellphones costing Rs 15,000, there were few people ready to jump on to a new revolution in communications.

Ten years on, rates have fallen, new services like SMS have been added and the subscriber base has swelled to over 41 million.

But the industry is seeking to ramp up the subscriber base and take the revolution to the masses. The ambitious target is to have 250 million subscribers by 2007 and 400 million by 2010.

Those are big numbers and, before it gets there, the industry will have to get its act together, stop prevaricating on phoney issues like spectrum and quibbling other phantom costs so that they can keep the charges high.

On Monday, the cellular industry will celebrate the tenth anniversary of the first mobile call in Calcutta ' and it affords a time for some soul-searching on these issues that haven’t been addressed since the regulator came up with the idea of forbearance and decided it had no role to play in tariff setting.

The government has already raised the overseas investment ceiling in telecom companies to 74 per cent and it could offer free spectrum (basically the radio bandwidth in airwaves that transports calls) and slash taxes and duties on the sector as a whole. But will that bring down telecom charges sufficiently to turbo-charge growth in the sector' Probably not.

This brings us to the delicate issue of regulatory intervention to drive down costs and hasten the spread of the mobile culture across the country.

A senior executive of the Cellular Operators Association of India (COAI) said, “The mobile rates in India are already the lowest in the world. How low should we bring them to'”

Four major decisions have contributed to the phenomenal growth of the Indian cellular industry: the switchover from a fixed cost to a revenue sharing regime with the government in 1999, the introduction of a free incoming call regime, the lowering of tariffs and facilitating low entry through pre-paid services, and segregation of long distance charges as origination, termination and carriage charges.

Beginning next year, India is aiming to increase the subscriber base by 3 million every month.

“What needs to be done to achieve this phenomenal growth are lower and affordable tariffs in line with the segment of the market. This is needed as the new subscribers would be from semi-urban and lower affordable customers,” said an analyst with PricewaterhouseCoopers.

Most of the subscribers are based in cities like Delhi, Mumbai, Calcutta and Chennai. They also reflect two aspects: first, 80 per cent customers are pre-paid and, second, the average revenue per user is dropping every month.

Since majority subscribers are in the pre-paid category, telecom operators have the advantage of an assured cash flow and lower cost of collection.

Analysts say the cost-based rental for pre-paid subscribers works out to about Rs 60 per month. But operators are charging subscribers anywhere between Rs 150 and Rs 300 per month.

The monthly rental is based on a complex calculation. The cost per line is about Rs 3,300 (for a GSM technology phone) based on the latest tender approved by Bharat Sanchar Nigam Limited (BSNL). At a 22 per cent annual recovery of the capital cost estimated by the regulator under a cost-based tariff model, (3,300 x 0.22=726), it works out to Rs 726 for a year. Divide this by 12 and you get Rs 60 per month.

“Even if we were to add the bad debt and billing and human resource cost, the per month rental should not be more than Rs 75. Add another 12 per cent service tax and it will still not be more than Rs 85 per month. With the growth in volumes (subscriber base), the regulator should re-examine this,” said a senior official in the tariff-setting division of BSNL.

“We are also forced to hike rentals and call cost since the market forces are in play. If a ceiling is set, it will benefit all the consumers, irrespective of the service provider they wish to opt for,” the official added.

Now let us examine the cost-based call charges fixed by the regulator at 30 paise per minute (same as termination charges).

A call from one mobile to another involves 30 paise as originating cost and 30 paise as terminating cost. So the total cost to the subscriber should be 60 paise per minute.

According to the regulator, the 60 paise includes the spectrum and revenue share charges that operators pay to the government.

Against this, the pre-paid customers pay call charges of an average of Rs 2 per minute.

The short message services (SMS) has killed the paging industry, crippled the greeting card business and is the basic mode of communications among the youth. The cost of SMS can be as low as 5 paise per message of 160 characters. But operators charge Re 1 to Rs 1.50 per SMS.

SMS does not use any channel resource of the operators. It only uses the signalling resource. According to a technical expert in the Wireless Planning Commission, “It does not use spectrum as voice and data, but uses signals from a mobile switching centre (MSC) to send the message.”

“Most operators boast of a countrywide footprint. That being the case, why should there be a roaming and STD charge' The roaming charges within India can be done away with if the subscriber is roaming within the same operator’s network. Why should there be an additional call charge'” asked a senior BSNL official.

Analysts say if the regulator permits operators to hand over the calls from an MSC in one circle to another MSC in another circle, there will be no need for a roaming cost.

Currently, if a subscriber of one operator moves from one circle to even the border of another circle, he has to pay a roaming charge.

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