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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
much.
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
targets’.
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.