Telecom Sector: The artificial barriers to growth

“My commitment is to the consumer, to growth and to do justice; I simply follow these three goals in that order.”
- Mr. Pradip Baijal – BusinessWorld 10 November 2003.


We agree with Mr. Baijal that India’s telecom policy should have these three goals and in that order. But we would like to bring to notice few government policies and regulations that are working against the goal of consumer interest and growth. We request the government to look into it and if found fit make required changes.

1.Call carrying charges:

Call carrying charges are charges charged by a telecom player from another telecom player for carrying calls from one place to another. According to which suppose a company like Bharti, which has operation both in Delhi and Punjab, to carry a call of an Airtel customer residing in Delhi to Punjab will have to pay national long distance operator (BSNL) call carrying charges just to cross the state border(note that Delhi and Punjab share the same border). It leads to increase in complications and hence cost. The only rationale in doing so is to give unjustified advantage to the government owned telecom company - BSNL.
If government does away with call carrying and call terminating charges, at the same time making it necessary for each player to provide interconnectivity, “bill and keep” system of settlement of accounts among the telecom players will automatically follow. This will save a lot of cost and effort for the telecom players in billing, settlement of accounts among themselves etc. It will also provide a lot of flexibility to telecom players to design tariff structure as per the needs of its clients. It will help the small players to survive who will cater to the niche market with customized services.

Deficit User charges (DUC)

This is yet another innovation from the stable of the Indian telecom regulatory authorities. Its motive is to increase telecom density in rural areas – a social cause. For this the government has introduced an additional 80 paisa per minute charge on STD calls to be paid by telecom players to BSNL. This is to compensate BSNL for losses it has to suffer in setting up phone lines in rural areas.
In fact, with the latest optic fibre infrastructure in place, the cost of “carrying” a call whether local or STD is the same. It doesnt matter whether the call is from your house to a house on the other side of the road or to a place 3000 km away from your house until unless it’s in India2. This artificial differentiation of Local & STD is therefore not required. If DUC charges are done away with telecom players will be in a position to provide ‘one charge’ for the whole country, something that many mobile players had started before the introduction of this new DUC charges of 80 paisa. I need not mention the major gainer will be the customer.
Another benefit of doing away of DUC charges which will in effect lead to ‘all India one charge’ will be that telecom players would be able to provide one number for whole country. Words like roaming, SDCA, STD would become obsolete.

Technologically with optic fibre infrastructure in place there is no barrier to Growth (spectrum utilization rate in India is too low in comparison to other countries; hence it’s not a limitation.) 3. A parallel can be drawn between cable television industry and telecom industry. As in cable television industry once the cable is in place it does not matter how many hour the customers actually watches the television, similarly in the telecom industry it should not matter the number of hours a customer actually talks over phone. We pay around Rs. 200p.m for cable television and receive/consume much more bandwidth than we consume while talking over phone. Once these artificial barriers are removed we can expect telecom players to provide unlimited talk time to anywhere in India at a price as low as Rs. 200p.m. Like in cable television where pay channel like Discovery Television charge premium for niche content, extra charges will be there for value added services like internet on telephone etc. We have witnessed how not only cable television industry grew exponentially but also many related industry like private channels, non-film music industry, etc. took off. Same can be expected if these artificial barriers are removed and telecom industry start following the billing system similar to the cable television industry. Industries like movie on demand, two-way television, net on cable, Internet on mobile etc. will come up. Hence these artificial barriers are not only barriers to growth of telecom industry but to the growth of many other new age industries.

Suggestion: The first reaction to the above by a typical babu in government will be -then from where will government get its revenue to meets its social obligations, blah, blah? The best way government can do so without harming the customer interest and growth much is by charging all kind of taxes, fees, charges etc. as a percentage of revenue4. For example if a telecom player is charging say Rs. X for unlimited talk time anywhere in India Government can charge:

10% of the revenue as sales tax.
10% as license fees
10% as Deficit user charges
20% as other charges

Total 50% of the revenue will be collected by the government as various taxes, fees, charges which is quite close to the share government currently has in the revenue of telecom players. If a telecom player requires minimum say Rs. 2005 per month it will bill the customers Rs. 400 p.m. This way government will be able to collect Rs. 200 per customer.

The benefit of the above will be

1. There would be lower entry cost in the industry that would increase competition and help small players survive
2. Lot of billing, regulatory cost and effort would be saved
3. Government will automatically get share in revenue arising out of industries that are yet to develop without coming out with new legislations
4. Government revenues will grow with the telecom industry
5. Regular disputes arising out of policy implications would be avoided
6. Telecom players will be able to take long-term decisions without fearing change in policies
7. Assured revenue for the government and the telecom players
8. Customers are better informed and served

Explanatory Notes:
1. Initially few players might not have agreed to ‘bill and keep’ system as this system make entry of new player easier. But now with increased competition in telecom entry barriers are no longer relevant.
2. In fact it does not make much difference even if the called place is located outside the country. The costs are the same just like in the case of internet where it does not matter whether you are sending email to your friend in the same town or to a friend in U.S.A. But again in international calls artificial barriers like regulatory laws of that county, carrier charges etc. come into play.
3. Spectrum utilization rate in China is twice than that in India. Considering the growth estimates available spectrum scarcity is nowhere in the horizon. Secondly new technologies are coming up which are increasing spectrum utilization every day.
4. There would be fixed fee for spectrum as its availability is limited and if its availability is made free there won’t be efficient utilization.
5. Continuing with the previous conjecture that revenue of Rs. 200 per customer will be satisfactory for the telecom players. They will try to increase this by providing value added services.

Bibliography:
1.Spectrum: It’s the control over airwaves that are required to provide wireless services.
2. All India one charge: Charging similar charge for local and STD calls. Not discriminating between a local call and an STD call.
3. Bill and Keep method: Under this method the telecom player whose client is originating/making the call bills his client. If the call is terminated on network of another telecom player he does not charge anything to the first telecom player as termination charges. In return when the call originates on the network of second telecom player the first telecom player do not charges call termination charges.
4. Call termination charge: Charge paid by one telecom player to another for connecting to a telephone in its network.