Basic Tariffs: Regulate with an Iron Hand

VoicenData Bureau
New Update

Should we have a cost-based tariff or continue with the existing below-cost

tariff, which is supposedly affordable for a larger section of Indians? Once

again TRAI has begun the tariff re-balancing exercise. As a first step towards

this, it has brought out a consultation paper. However, will TRAI be able to

achieve its objective of bringing basic rental and local call charges closer to

cost? The last time it conducted a tariff review was in 1998—99 when rentals

and local call charges were revised upwards while NLD and ILD rates were slashed

with the objective of bringing them closer to cost. Then also it did not achieve



Will the present exercise prove worthwhile? Not until it takes some practical

and politically correct steps. One of which could be forcing all operators to

offer cost-based rates to commercial users. Let us see why the commercial users

need to be charged differently.

The consultation paper seeks to explore ‘the tariff framework for basic

services, including dial-up access to the Internet, in the context of the

competitive trends seen in the telecom market’. The idea behind the exercise

is to ‘elicit feedback on the key objectives to be served by this tariff

review and to determine the regulatory direction for a medium-term scenario’.

Without getting into complexities of what tariff revision entails and how it

should be worked out, let us first recall why the below-cost tariff was devised

in the first place. It is well known that the principle objective was to

increase the tele-density by making telephones affordable for more and more

people. The below-cost tariff for local calls and the monthly rentals were then

cross-subsidized by high long-distance tariffs. Has that context changed now?

Obviously not. Tele-density remains abysmally low, affordability remains a big

issue and competition in the fixed service still remains non-existent. The only

significant change since the 1999 Telecom Tariff Order has been the fact that

long-distance tariffs, both national and international, have come down to once

unexpected levels because of competition.


In this backdrop, what should be done with the existing basic service

tariffs, given the fact that any re-balancing here would only mean an upward

revision of local call charges and monthly rentals? One argument could be that

since long-distance tariffs cannot be any more used to cross-subsidize local

calls and rentals because they are going down, the subsidy on local calls should

be discontinued. But such a move can hit a number of practical bottlenecks. TRAI

itself admits that since the existing tariff structure is based on

considerations of affordability, it would be difficult to alter it all of a

sudden. Also any upward revision of the tariff could definitely meet with a

strong political opposition. In fact, the union communications minister is

reported to have said that there would be no revision in the local call charges

and rentals for the next two years. More important than all this, an upward

revision, as TRAI itself found in a study commissioned by it, could adversely

‘affect a rapid growth of subscriber base and the achievement of the tele-density


Further, if cellular tariffs continue to decline and WLL limited mobility

services start offering rates (like 1.20 per 3 minute call) that are talked

about today, fixed services customers might start surrendering their phones,

thereby making the operations further un-viable.

It is in this context that TRAI needs to begin the re-balancing exercise by

forcing the operators to increase tariffs for commercial users. Basic service

operators should be forced to do so, because they never implemented TRAI’s

earlier suggestion for recalibration of commercial users’ rentals. And TRAI is

not off the mark when it says that this way operators lost an opportunity to

raise the much-needed resources that could have off shoot their huge deficit.


It is ironical that on one hand, the government finds itself short of

resources for the expansion of telecom infrastructure, while on the other hand

it has been subsidizing commercial use of phones for ages! Why is below cost

fixed service being used to subsidize private business? Since TRAI admits that

in the absence of effective competition in the sector, regulator would continue

to play a dominant role in fixing tariffs, it should ask operators to charge

different tariff from commercial enterprises, even government departments and

other such ventures.

While there could be other ways of bridging the gap between cost-based tariff

and affordable tariff (interconnection usage charge is one such means), one

thing that TRAI should facilitate is sharing of network infrastructure among

various basic service operators to bring down costs. Among other things, this

would mean that incumbents–BSNL and MTNL–should unbundle their last mile

network and provide access to private operators. Till date, there has not been

any serious effort unbundling in India. This has not only led to unnecessary

cost inputs but has also in fact, slowed down the spread of telecom services.

Ravi Shekhar Pandey