INTERNATIONAL CONNECTIVITY: The right foot forward

Almost six years after Telecom Tariff Order (TTO), 1999 was
issued, Telecom Regulatory Authority of India (TRAI) has finally reviewed the
tariffs of international private leased circuits (IPLC) in different capacity
categories. The ceiling of tariffs has been welcomed by the industry. However,
the order appears to have come a bit late and falls short of expectations.

The TRAI announcement effectively means 35 to 71 percent
reduction in the prices in different categories. The new ceiling tariff for IPLC
half-circuit of E1, DS3 and STM-1 capacities are Rs 13 lakh, Rs 104 lakh and Rs
299 lakh a year respectively. This order does not include satellite IPLC and
this has been forborne.

The reduction in the tariffs is expected to directly affect
the international long distance call rates and benefit bulk bandwidth users like
the ISPs and IT enabled services like the BPOs and call centers from April 1,
2005 when these tariffs would be implemented.

Despite welcoming TRAI's step, the industry does not seem
to be very happy. Tata-owned Videsh Sanchar Nigam Limited (VSNL) has already
moved TDSAT, against the order. Other operators either refused to comment or are
waiting for the TRAI decision on the domestic leased lines before reacting. In
fact, VSNL has raised the contention that IPLC bandwidth prices should not be
seen in isolation and unbundling of local loop for the overall tariffs to
actually go down.

Failure of competition

India has four international bandwidth providers-VSNL, Bharti Infotel,
Reliance Infocomm and Data Access. While small nation like Korea, Mauritius have
more than 10 bandwidth providers. Of the Indian ILD operators, only VSNL, Bharti
and Reliance have submarine cables to deliver IPLC connectivity. Among these,
Reliance is still working on the landing facilities in India through the Falcon
project and Data Access gave satellite bandwidth. However, even after VSNL's
monopoly ended, the competition has not helped the market grow and revenues have
been falling at over 13 percent per annum. VSNL still continues to enjoy the
largest market share of over 85 percent (V&D 100 estimates) when it comes to
international connectivity.

Despite the TTO 99 letting the market forces to decide on the
tariffs, the Indian operators have kept the rates higher than many other
nations. The problem has not been with the availability of bandwidth. Contrary
to the belief that competition would bring the prices down; it has kept it up,
thus inviting the regulator to fix the upper limit.

Effect on Internet/broadband tariffs

Apart from the three operators who own the cable, BSNL and MTNL sell
bandwidth to Internet Service Providers (ISPs) and today all the telecom
operators offer Internet services to the end consumers too. Ideally the
reduction in the IPLC rates should bring down the Internet cost too as more
bandwidth would be available at lesser cost. However, ISPs and telecom operators
say the Internet tariffs are already very low and it would be difficult to
reduce them further. MTNL CMD RSP Sinha said the broadband prices being offered
have taken into account the reductions and hence would not go down further in
the near future.

TRAI has been silent on the demand for mandating the telecom
operators to offer retail minus pricing to ISPs. This would enable an ISP to buy
bandwidth at slightly lower price than that being offered to the retail
customer.

With IPLC rates going down, more bandwidth would be purchased
and made available by BSNL-MTNL and others, but they might reduce the price
equally for the ISPs as well as their enterprise customers. So, for customers
buying directly from the telecom ISP it might get cheaper while others may
benefit less.

Effect on international long distance calls

More than the IPLC rates, international long distance call rates depend on
the ADC being levied on the operators. The ADC often forms up to 70 percent of
the call charges. So even if the remaining 30 percent is removed, which is
unlikely as operators have to generate money too, the ISD call rates would
witness small reduction. Further, call termination depends on the domestic lines
as well as the last mile loop also and unless they are brought down, significant
reduction would not be seen.

Today the international rates are not bound to the distance
of the call being made. In fact, calls to US are cheaper than those being made
to the Gulf nations. TRAI should look at removing this anomaly.

Effect on IT and ITeS

IT and BPO industry are said to be the biggest beneficiaries of the current
order, as they need huge bandwidths to remain connected 24x7x365 with their
clients. They are the bulk buyers and are contributing almost 80 percent to the
international connectivity pie. Though IPLC still occupies their mind, IP-VPN
and MPLS-based services are also vying for a piece of the kitty. This has also
prompted VSNL to move against cost reduction and argue that IPLC forms a very
small percentage of the total cost structure of the IT and the ITeS industry and
hence would have a marginal effect.

Whatever VSNL or any other bandwidth operator says, the fact
remains that even after the ceiling, the prices are still on the higher side.
Though TRAI acknowledges the benefits of Forward Looking Long Run Incremental
Cost (FLLRIC) method, it sticks to historical average cost method. The regulator
says "relying mainly or fully on FLLRIC would give a much greater shock to
the market, and is also likely to make transition to competition much more
difficult" but it does not disclose the difference between the pricing of
both the models. A calculation shows there is scope for reduction in prices by
another 50 percent at least in the IPLC segment.

Along with the pricing, the regulator has to look into the
quality of service and compliance to service level agreements too. Today, a
customer might be ready to pay slightly more if he is offered better services
and uptime. TRAI should also come out with mandatory parameters on QoS.

Thus, though the TRAI's move is in the right direction, lot
needs to be done and many other aspects need to be examined before the desired
effect of the order can be felt.

Anurag Prasad