CELLULAR: The Better Deal?

India has witnessed an annual growth rate of about 68 percent in cellular

subscriber base over the last three years. The number of cellular subscribers in

the country, currently stands at about 3 million, and is set to reach 20 million

by 2004. In a move to augment the growth and penetration of cellular services in

the country, TRAI, has reinitiated the dialog on the Calling Party Pays (CPP)

scheme, for cellular mobile services by putting out a consultation paper.

The mode of payment for the mobile leg of a call originating in fixed network

and terminating in a mobile network can either be Mobile Party Pays (MPP) or CPP.

Currently, the MPP scheme is in operation. TRAI initiated the migration of MPP

to CPP in its previous order in September 1999, but was challenged in the High

Court of Delhi, on the grounds that TRAI did not have the legal authority to

implement CPP under the conditions of government-issued licenses. After suitable

amendments have been made to the TRAI act, it has now become possible for TRAI

to reinitiate the discussions on CPP.

More Benefits of CPP

Under CPP, the person initiating the call pays the entire cost of the call.

If a call is made between two mobile users, then the person making the call pays

the entire cost of the call. In the same way, if a call is made from a fixed

network to a mobile subscriber then the user on the fixed network pays the

entire cost of the call. In both these examples of CPP, the user receiving the

call does not pay directly for reception of each call.

The benefits for the concerned parties are as follows:

Subscribers:

• Greater flexibility and more diverse pricing options

• Control over costs as the mobile subscriber now pays only
  
  for the calls it makes

• CPP may result in publishing of a cellular directory by
  
  the operators and thus make the mobile subscriber more approachable

Operators:

• Greater MoU and greater revenue

• Flexible pricing options

• Level playing field with FSP, with "Limited
  
  mobility"

Mobile operators using CPP have a much wider revenue base to

draw on than operators in markets with MPP. This is because users from fixed

networks are part of their revenue base and contribute to meeting the cost of

mobile operator in terminating a call. In markets with MPP fixed network, users

are not making a direct contribution to the costs incurred by the mobile network

in completing the call. The receiver of the call meets this cost. Thus, mobile

operators in countries with CPP have an additional revenue source, and can

potentially be more flexible in pricing services. The proportion of revenue

gained by mobile operators, from traffic from other networks, is very

significant. In France, for example, mobile operators make about one-third of

their turnover on revenue from incoming calls.

The value of having a mobile subscription increases as the

number of mobile-to-mobile calling opportunities increase. Mobile operators

often price these calls less expensively than calls between fixed and mobile

networks. The ability to draw revenue from a wider user base enables mobile

operators in countries with CPP to offer tariffs aimed at keeping traffic within

their network. Mobile operators in countries with MPP also attempt to do this,

so they can bill two subscribers, but face a harder task because of some users’

reluctance to pay for incoming calls.

This can be easily supported by the experience of the

countries that have introduced CPP regime and also by the views of the CEO of

Vodafone-AirTouch who is on record as saying that CPP has accelerated mobile

subscriber penetration rates in those markets where it is in operation. He

believes that CPP is one of the main reasons why European growth rates have

exceed those in North America. Vodafone-AirTouch, which has a substantial

presence in Europe and the US, says that 40 percent of European mobile phone use

comes from inbound calls, as opposed to just 20 percent in the US.

Issues

There are a number of obstacles to the introduction of CPP,

as an optional pricing structure, for countries such as ours where MPP has been

the predominant pricing structure. Two of the leading challenges are ensuring

that there is adequate notification for users and necessary billing systems for

telecommunications operators.

Pricing

However, the most pertinent question is, who sets the retail

price for calls from the fixed network to mobile networks, the level of

competition they face and what actions regulators like TRAI should be taking in

this market segment.

Costs

The cost for customer education and other costs in

implementing CPP.

PSTN/FSP

• Upgrading of equipment to include intimation to
  
  subscriber calling a CPP enabled mobile user, STP type locking facility,
  
  billing, etc.

• Different numbering scheme for new CPP enabled phones

MSP

• New pricing options and packages to end user (marketing
  
  costs)

• Enhanced network capacity to accommodate the envisioned
  
  spurt in growth of subscribers

However, since it is very difficult to calculate costs

specific to incoming calls in existing networks. It is thus suggested to treat

mobile networks as a simple carrier and the interconnect charge be decided by

mutual agreement by the operators with a floor and ceiling suggested by the TRAI

(based on historical data).

Prof. V Sridhar, IIM Lucknow