Looking for a Leader

Wanted: A brave new operator, preferably with multiple
points of presence. It should have characteristics of a price warrior, ready to
operate international calls on lower margins. This perhaps is the most apt
description of what is required from an operator in the SAARC region in order to
lessen the burden of exorbitant roaming charges and intra-region calling
tariffs.

SAARC, that swears by its commitment for regional
cooperation and building strong relations, has failed to do something which is
most crucial for leveling those ties-to bring intra-SAARC telecom tariffs down
so that people in the region can talk more frequently. Strange but true, it is
much cheaper to make a call from Kolkata to a distant city in the US than to
make a call to Dhaka, which is only about 245 km away.

The scenario of roaming charges is no better. Subscribers
in the region have grown used to bill-shocks while on roaming in neighboring
countries. Moreover, India and Pakistan do not have any direct roaming
relationship, for obvious reasons. Interestingly, Pakistan has the lowest
international telecom charges in the world, but strangely, those are not
applicable to its SAARC neighbors.

The declaration made at the 15th SAARC Summit (August
2008), Colombo states that "an effective and economical regional
telecommunication regime is an essential factor for connectivity and for
encouraging the growth of people-centric partnerships."

The declaration also points out that "there is a need for
the member states to move towards a uniformly applicable lower tariff-for
international direct dial calls-within the region."

At various SAARC and international forums, operators in
the region have been expressing their collective will to bring down tariffs.
Unfortunately, there have been only talks and no action. The operators have
consistently failed in translating their intent in to some tangible result. This
lip-service is hardly likely to be translated into action since the business
imperative will ensure that the tariffs remain high.

While operators from all the SAARC countries have to
collectively decide about how to bring down the tariffs, it goes without saying
that the Indian operators should make the first move. India being a dominant
economy in the region could set an example for others to follow.

The Tariff Tangle

It is pertinent to know why the tariffs are so high when the cost of
completing a call is not too much. Satyen Gupta, chief regulatory officer, BT
explains that the cost of international call can be broken into three
components-the cost of origin (from caller to international exchange), transit
cost (of hauling the call from the international exchange of one country to a
destination exchange in the other country), and termination cost (of hauling the
call from destination country's international exchange to the recipient's
phone).

Gupta further explains that in India, the cost of
termination is between 20-40 paise, depending on the distance from the gateway.
But there is a huge difference between the cost and tariff charged and that is
mainly because of the other two cost components.

Dr Mahesh Uppal, director, Com First says, "The tariffs
are high even though the incremental cost on the ILD network is very low. The
tariffs go up because of the high termination fee that an operator charges the
other."

Most operators complain that it is the third-party carrier
who charges them a fortune to route a call. Thus, there is no choice but to
charge a higher termination fee to balance the pressure. V Ravisankar, CEO, Tata
Communications Lanka differs, saying that international long distance carriers
have their own costs, such as licensing costs, which are very high. The charge
that these service providers offer does not always earn them fat margins. "At
times these carriers are forced to serve at as low as 4 paise margins," he says.

Operators agree that none of them on either sides would
like to compromise on the revenue that they earn by terminating the call on
their network. Uppal says, "Costs of international calls are determined by
termination charges imposed by foreign operators, who receive the calls.
Domestic competition determines whether the lower costs are passed on to
customers."

Christopher Almeida, senior VP, global voice solutions,
Tata Communications agrees, "Operators in all the SAARC countries are operating
on very low ARPUs. Especially, in markets like India and Pakistan, the domestic
competition is very intense and operators are making meager margins. In such a
scenario, ILD revenue comes as the milch cow. They want to earn higher revenues
from it."

Chicken and Egg?

The operators typically blame each other for higher termination fee. Thinley
Dorji, CEO, Bhutan Telecom agrees, "Lowering tariffs within the SAARC makes
business sense for all operators in the region, but we have all neglected
talking and convincing each other."

Some operators contend that low traffic is one factor that
drives the tariffs up, while consumers may argue that high tariffs dissuade them
from using international calling and roaming services. Hence, a vicious circle
sets in.

"I do not think high tariffs are a matter of low traffic.
We should then analyze the traffic to some other places. Are the tariffs too
high from Delhi to Dibrugarh or Gorakhpur?" says Uppal.

"Over half a million people from Bangladesh visit India
every year for either medical care or business, and a large number of students
choose India to pursue higher studies. This creates significant international
traffic," says Mir Masud Kabir, MD, Mango Teleservices, Bangladesh.

HC Soni, consultant, Reliance Communications suggests,
"Profiling of roaming subscribers is important-people traveling for health care,
education, business, or for tourism. All these travelers either use roaming in a
very restrictive way or buy a local SIM. If roaming rates are reduced, the
people will use mobile liberally and perhaps in the long-run, there may not be
any effect on roaming revenue." He further adds, "This can be verified by
analyzing the Singapore-Bangladesh pre and post roaming revenues on local rates.

However, Rajat Mukharjee, chief corporate affairs officer,
Idea Cellular sees the entire scenario from a traffic vs circuits point of view;
"It is more of an egg and a chicken situation. If there are enough circuits they
will attract higher traffic, and thus the other way round."

In 2007, Bangladesh had proposed to cut bilateral telecom
tariffs by 25-30% with SAARC countries, despite the then mechanisms that allowed
tariffs to be cut as high as 50%. A year later, Bangladesh Telegraph and
Telephone Board (BTTB) expressed its inability to go for all-in-one cut in
regional rates due to uneven negotiating position of Bangladesh's state-run
telecom company with private carriers in other SAARC countries.

Currently, the BTTB has direct circuits with India,
Pakistan, Sri Lanka, and Nepal, that allow calls through bilateral agreements
with four Indian private carrier-VSNL, BSNL, Reliance, and Bharti-and one
private carrier each from Pakistan, Sri Lanka and Nepal.

Road to Reforms

Minuscule reforms have taken place over the past few years. According to
Rohan Samarjiva, LIRNEasia, "Till early this year, on the fixed side, the only
countries with intra-SAARC tariffs lower than non-SAARC countries, are Bhutan
and Nepal. Bhutan, because it has a special price for India (prices for other
SAARC countries are high) and Nepal, because it has not changed its extremely
high tariff structure (and the lower-by-comparison intra-SAARC prices). UTL
Nepal has recently slashed tariffs for India. The subscribers can now make calls
to India at Nepali Rupees 3/minute. However, the charge for the rest of the
region, except India, is Nepali Rupees 15/minute.

Some countries are taking a lead in reducing the calls
rates being made in the region. For instance, Sri Lanka based Dialog Telekom has
recently reduced the rates for calls being made to India. Lanka Bell is another
operator which has reduced the call rates.

Going the EU Way

The Telecom Regulatory Authority of India had long proposed that the SAARC
region could emulate the European Union (EU) model, whereby all member states
cut international roaming rates. Industry experts say it makes sense for India
to go for this model. This would reduce the roaming charges, which are one of
the highest in the region. It would also allow the functioning of the same
number in the SAARC countries without any additional charge.

There are other good examples that SAARC can learn from.
South Africa based Zain has decided not to have any roaming charges in the three
countries it operates in.

Similar revolution is needed for the SAARC region as well.
Almeida of Tata Communications says operators having multiple properties and
multiple points of presence can bring about a change. It must be mentioned that
it is not going to be easy. There was a strong resistance from operators in EU
as well in implementing the common roaming tariff regime. It was the
government's dictate which forced them to implement it.

In comparison, Zain explored the model on its own and
reaped the benefits since usage went up and other operators were forced to
reduce roaming charges. It is up to the operators in the region to explore this
opportunity.

Malaysia Telekom and Telenor are the two operators present
in three countries in the region. For instance, Telenor is present in Pakistan,
India and Bangladesh. The company can reduce the roaming charges and bring down
tariffs in the region.

Will and Way

It will be a big challenge for operators to negotiate lower termination
rates from their SAARC counterparts. Thus, experts feel it is important that all
the regulatory authorities in the region collectively decide to bring down the
prices. Since India plays an important role in the region, India can set an
example by reducing the tariffs first. The regulators on both the sides will
have to take initiative to make this happen. A regulator's goal should be to
simulate the market and create an ecosystem that supports traffic between the
SAARC countries.

Since the regulatory framework in each of the SAARC
countries is different and may not enjoy equal powers, the regulator alone may
not be able to push for lower intra-SAARC region.

Miraj Gul, director, interconnect & regulatory affairs,
National Telecommunication Corporation, Pakistan says, "Sometimes, even the
regulator becomes helpless and is not able to implement these suggested
measures."

Ananda Raj Khanal, director, NTA says, "NTA does not put
any cap on the tariffs, it can only make recommendations to the operators to
lower them in case they are too high."

"But no regulator wants to bell the cat," says Gupta of
BT.

Regulators will have to come together and work out
cost-based tariffs. Analysis needs to be done on what kind of usage is required
and on giving more choices to the users, so that the operators do not exercise
their autonomy.

"Opening up VoIP will change the way how people in the
SAARC countries communicate," suggests Naresh Ajwani, president Cyber Cafe
Association of India. Unfortunately, broadband penetration in the SAARC region
is 1.8%. The fight will soon be on the cost/MB rather than cost/minute once
Internet telephony spreads its wings.

Tariffs will fall when there is competition among
operators and also for the services they offer. When there are limited
operators, they form a cartel.

"The regulator will have to ensure competition not only
with in the SAARC region, it will also have to offer competitive functionality,"
suggests Uppal. "If a subscriber is able to make a call to some country through
the Internet by paying only Re 1, it will be illogical for him to spend on
mobile services also," he adds.

Earlier this year, the Government of India was considering
to allow calling-cards issued by the STD/ISD operators, hence offering customers
the choice of making calls from any access network and yet have the calls routed
through the network of their choice. If implemented, this may bring down
international calling-charges by up to 70%. The governments, regulators and
operators in these regions will have to innovate new practices to retain
customers and keep the revenues flowing. A lot of invasion has happened from
Google Talk and Skype.

Some industry veterans suggest government policy can play
a crucial role in realizing SAARC's dream of lower telecom tariffs.

Chandi Sreshtha, board member, Spice Nepal says, "Making
it mandatory that all incoming international calls be charged the same
termination charges as domestic calls in the SAARC region. This will be a bold
move that will bring competition in the market."

The region at present needs one bold player that is
prepared to offer international long distance services at lower margins and set
the ball rolling. Experts feel that big players will not be in a position to
take that risk, but new operators with multiple points of presence, are most
suited for this kind of daring act.

A kick-start can be offered by an operator who is
providing access, NLD and ILD in collaboration with another operator in a member
country, providing the rates similar to domestic roaming rates. Slowly, all
other operators will come in line-as it has happened in India, the rates for NLD
have come down from Rs 16 per minute to Re 1 per minute. Future-proof OFC media
is mostly available, thus, there may not be any problem to accommodate any
amount of traffic. Operators, regulators, and decision making bodies should come
together to explore a mutually beneficial initiative. So is anyone listening?

Heena Jhingan

heenaj@cybermedia.co.in