May 28: Forbearance has been a watchword with the telecom regulator since September 2002 when Trai first decided to allow market forces to determine the rates that cellular mobile telephony operators could charge their customers.

The regulator's hands-off policy on telecom tariffs has worked well in the industry and survived a review in 2012 after an industry-wide consultation process.

The consultation paper of 2012 clearly spelt out what "regulatory forbearance" meant. "Forbearance needs to be distinguished from deregulation," the paper said, a concept that encapsulated the idea of discretionary restraint on the part of the regulator.

"There are two other important aspects or features of forbearance. First, the power to forbear may be exercised in whole or in part. Second, the decision to forbear does not prevent the regulatory agency from exercising its jurisdiction under different circumstances. That is, the exercise of forbearance is not irreversible," the paper added.

Under the forbearance policy, telecom players have the flexibility to fix tariffs for all the services they offer, except in the case of national roaming, fixed rural telephony and leased lines. There are a couple of conditions attached to the exercise of this right: the telecom player must carry out a self-check to ensure that the tariff plan does not fall foul of a triad of regulatory principles that include the interconnection usage charge (IUC) regime, non-discrimination and non-predation. The tariff plans must report the details of each plan within seven days of its implementation.

Jio's entry

But cataclysmic changes in the telecom industry - especially with the entry of Reliance Jio in September last year with a promotional offer that has stretched interminably since launch and recently segued into a very low priced offer for data bundled with the benefit of free calls - threaten to shake the foundations of the forbearance policy as it has been practised for close to 15 years.

Back in February, Trai had floated a consultation paper seeking industry responses to the principle of forbearance, the duration of promotional offers, the definition of predatory pricing and whether market dominance should have any role in tariff fixation.

In its latest paper, the regulator once again said: "Tariff forbearance has never been and is not a permanent policy followed by Trai. It is always open to the authority to withdraw, wholly or partly, from the forbearance regime, if the situation so demands."

Such a situation may have arisen now with the industry weighed down by a cumulative debt of Rs 450,000 crore, a measly 1 per cent return on capital employed (ROCE), and the fortunes of leading telecom operators swinging violently from a period of profits to deep losses in the just concluded financial year.

No one in the industry wants to abandon the policy of forbearance just yet. But leading operators such as Airtel have been insisting that there ought to be a cap of 90 days on all promotional offers with some even insisting that there ought to be a clear 90-day gap between two promotional offers.

Reliance Jio - the target of industry criticism - has insisted that an offer that is "below cost or zero price alone is not sufficient to prove predatory pricing".

It has argued that the litmus test for predatory pricing must contain three elements: rivals should prove that the prices are unreasonably low; it must be shown that the offer is designed to substantially lessen or eliminate competition; and finally there must be a reasonable expectation that the predator would be able to recoup its losses after its predation ends.

"All elements must be met and no case can proceed without each element being satisfied," it said in its response.

Bharti Airtel, the telecom behemoth with consolidated revenues of over Rs 95,000 crore, has argued that Reliance Jio has violated all the cardinal principles of tariff regulation by offering "free services and generating a tsunami of incoming voice tariff on its competitors networks (to the extent of 93 per cent)."

Termination charges

Airtel claims that the huge asymmetry in traffic has led to a complete collapse of the interconnection usage charge regime under which the termination charge - that is the cost incurred by an operator for patching an incoming call from another network to its subscriber - is fixed at 14 paise per minute.

The Sunil Mittal-owned telecom operator claims that it suffers a loss of 21 paise for each incoming call and says that 86 per cent of the calls handled by Airtel "allowed for only partial recovery of costs". The result: huge losses this year.

Airtel said promotional offers should be restricted to 90 days in line with a series of "advisories" from Trai that date all the way back to 2002.

Reliance Jio has slammed operators such as Airtel, Vodafone and Idea for violating rules by limiting access to their interconnection points and offering special tariff plans to selective customers on a one-to-one basis (especially to rivals' customers under the mobile number portability plans) which are never filed with the regulator.

"Such customer specific offers are clearly discriminatory," it said.

Vodafone - the second largest telephony player in the country with a subscriber base of over 209 million - has questioned the timing of the entire exercise because the issue is currently sub judice.

"We strongly believe that any consultation on this issue would not be proper at this stage as the TDSAT (the Telecom Dispute Appellate Tribunal) well as the Hon'ble Delhi Court are seized of the matter, in which service providers have a dispute with Trai... Any discussion on sub judice issues may also be considered by the high court as a case of judicial overreach by parties," it said.

Regulator's bias

Although Trai hasn't yet examined all the issues raised by the various players, comments from Trai chairman R.S. Sharma in recent weeks haven't inspired confidence that the regulator is totally free from bias.

Sharma has already swatted away some of the demands of the entrenched players on promotional offers by trotting out the principle of forbearance.

Last week, the regulator acted on Reliance Jio's complaint and directed operators not to provide discriminatory tariffs to subscribers in the same class. It also asked them to report all plans to the authority within seven days of their launch.

It is clear that all operators are in some way violating the three principles that underpin the forbearance regime: IUC, non-discrimination and non-predation.

But the regulator cannot play favourites and must act equally against all of them.

Otherwise, forbearance is in danger of becoming a shibboleth in the dog-eat-dog world of telecom: a long-standing principle that is outmoded, irrelevant and unable to shape desirable outcomes with the advent of new technologies.