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INTERNATIONAL CONNECTIVITY: The right foot forward

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VoicenData Bureau
New Update

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.

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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.

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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.

The

Actual Cost of Bandwidth on the i2i Cable Between Chennai and

Singapore
Description

/ Line Item
Corresponding

Figure
Remarks^
Capital

Expenditure
$250

million
 
Total

Capacity
8.4 Tbps  
Minimum

expected Life
10 years  
Year

of Commissioning
2002  
Lit

capacity
360 Gbps 360000

Mbps
ARE

(annual recurring expenditure) @32% per STM-1 (155 Mbps) capacity
$34,410 ($250

million*32%* 155) / (360000)
Maximum

annual cost (even after taking 100% overhead)
$68,820 Rs 30.9

lakh
Promotional

tariff for STM-1 p.a.
$0.95

million
Rs 4.27

crore
Ratio

of 'Promotional tariff' to 'cost-based tariff'
14:01  
IRU

cost per STM-1
$1,07,666 $ 250

million* 155 / 360000
IRU

tariff with 130% overhead
$2,50,000 Rs 1.125

crore

* Full circuit

tariff



^ Dollar Exchange rate presumed at Rs 45


** Discounts offered have not been taken into account, as they are
dependent upon various criteria



Source: ISPAI

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.

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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.

Comparison

Price and Ceiling Tariff
Comparison

of existing price and ceiling tariff fixed for IPLC (Half-Circuit)
Capacity

Annual

Lease Rental (Rs/lakh)
Extent

of
  Existing





listed price
Ceiling

tariff



fixed
reduction



(%)
E1 20.2 13 35
DS-3 361 104 71
STM-1 1000 299 70

Source: TRAI

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.

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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.

Existing

IPLC Tariffs
Existing

IPLC (half circuit) tariffs of various vendors

Capacity

Annual

lease rental (Rs / lakh)

  Reliance

Infocomm
Bharti

Infotel
VSNL
E1 69.9 9.81 20.2
DS-3 427 175.5 361
STM-1 1238 418.5 1000

Source: TRAI

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.

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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.

Type

of Bandwidth
Category Speed
E1 2

Mega bits per second
DS-3 45

Mega bits per second
STM-1 155

Mega bits per second

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.

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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

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