REGULATION: Phony Umpire

Four years ago, mobile operators accepted increased competition after the

government agreed to share their business risk. A forward-looking National

Telecom Policy 1999 allocated licenses by services and not by technology. But

the WLL (M) service now available to basic telecom operators can hardly be

distinguished from mobile services.

This has been the cause of rising rift between the GSM and CDMA operators.

The fight reached alarming proportions soon after the soft launch Reliance’s

India Mobile services. In a free-for-all, operators resorted to denial of

interconnect to each other, only to compound the woes of the bewildered

customer.

Role

of the Regulator



According to the International Telecommunication Union’s colloquium on

regulators, interconnect issues arise soon after the initial phase of

deregulation, when newer players have to route traffic through established once

monopolistic incumbents. Since late entrants are usually competitors with newer

technologies and better customer service attitudes they are naturally perceived

as threats. Incumbents therefore seldom cooperate with them. Since the primary

reason for deregulation is to foster competition, the regulator has to step in

ensuring a level playing field.

Consulting firm Gartner Research has a model that describes the

transformation that occurs in deregulated telecom economies. Soon after

deregulation–as it happened in our country during 1994-95–a plethora of

players rushes in, representing an expansionistic phase. As operators’

business models develop, competition, shakeout, and consolidation are witnessed.

Tariffs fall and volumes surge. Finally, there is restructuring amongst a few

players, when economies of scale allow prices to fall further and traffic to

soar almost exponentially. According to Geoff Johnson, research director,

"The number of years after deregulation taken to reach the restructuring

phase depends on the effectiveness of the regulator". The stronger it is,

shorter is the time for a country to reach telecom maturity, usually exhibited

among other things by pure revenue sharing interconnect agreements based on cost

plus operations. If the regulator is weak, this duration gets protracted and

painful as incumbents resist change and try to maintain status quo.

"Interconnection is tougher and longer than expected. But all countries

have to go through this", he points out. The intermediate years are tough

since there are large amounts of revenue, huge traffic changes as well as

personalities involved. A weak regulator unable to help build interconnect

agreements, creates business frustration amongst the newer players who witness

poor or no returns on investment.

What Causes Conflict?



The face-off in the first half of January this year, between mobile

operators, the telecom regulator, private basic telecom operators and incumbents

stems from exactly these feelings of business frustration. The root cause again–one-sided

interconnect terms built into revenue sharing agreements between basic and

mobile operators. Right since 1995, when mobile and basic licenses were first

issued, an access charge has existed for a mobile subscriber call terminating in

a basic operator’s and now also a WLL (M) network.

The origin of this access charge lies in the tariff structure of incumbents

BSNL and MTNL, which has been calculated on the basis of cross subsidy. Revenues

from long-distance calls pay for local calls. Revenues from higher usage owners

subsidize the costs of lower usage owners. Working on a below-cost model for

intra-circle traffic, MTNL and BSNL had no option but to recover costs of

interconnecting with mobile operators from the mobile operators themselves,

since it could not differentially increase tariffs for its own subscribers.

Mobile operators have, since 1995, therefore been stuck with both a ‘calling

party pays’ and a ‘receiving party pays’ situation, a peculiar situation

present only in this country.

Things would have continued like that, but for the introduction of WLL (M)

services. Department of Telecom had to create the service as an additional sop

so as to keep the business interests of private basic telecom players alive. S

Ramakrishnan, managing director, Tata Teleservices, says, "Limited mobility

is an additional business opportunity given to make the basic service license

viable." According to him, if this ‘abnormal concession’ had not been

made, only MTNL and BSNL would be around today.

While DoT created WLL (M), TRAI was supposed to implement a suitable

interconnect and revenue sharing arrangement among all concerned operators. The

ITU clearly specifies that the national regulator should help build these

agreements, with minimal involvement. In essence, interconnect terms can also be

brokered among the players themselves.

In the Corner



2001 onwards, after the first WLL (M) networks were rolled out by Tata

Teleservices in Andhra Pradesh, interconnect agreements between private basic

and mobile operators have been almost on an ad hoc basis. While private mobile

operators were transferring the Rs 1.20 access charge to them less their

collection fees, it is believed that private basic telecom operators were also

sharing a nominal access fee with them, especially for calls originating from

their WLL (M) networks. In the case of incumbents BSNL and MTNL, no such

reciprocal sharing was taking place. But the whole arrangement has remained very

fluid and sporadic with TRAI doing little to move towards cost based revenue

sharing agreements. While TRAI did present its reference interconnect offer,

mobile operators dismissed it as a "meaningless piece of document" and

"a menu with no price list".

Moreover, in order to make handover of traffic between operators smooth,

establishing optimal points of interconnection is necessary. This is also a key

role that the regulator has to play, according to ITU guidelines. Again, while

mobile operators have complained to TRAI about incumbents dragging their feet on

this issue, the regulator has done little to get things underway. In a recently

published article, former CMD of MTNL, S Rajagopalan writes, "TRAI does not

appear to be independent and is not discharging its functions well. There is

nobody the private operators can go to for remedy; they can be called silent

sufferers."

In early January this year, as the story goes, TRAI started putting pressure

on mobile operators to give faster access to Tata Teleservices’ WLL-M roll out

in Delhi and elsewhere. "We were in the middle of a commercial dispute and

somebody comes in and says you interconnect first and settle terms later,"

a mobile operator says.

TRAI’s insistence to provide interconnection first and draw up terms later

was in sharp contrast with the practice adopted by the incumbents. Mobile

operators point out that BSNL took almost 12 months to provide them

interconnectivity across the country.

"It has never been an issue to interconnect with WLL, but all we want is

a fair termination charge," a mobile operator points out.

TRAI’s recent announcement is a step in the right direction, but not

necessarily the right step. Kobita Desai, Gartner’s senior telecom analyst in

the country, says, "There is no real logic for an access charge since no

business model can absorb it." The only way forward is therefore complete

elimination of the access charge. Gartner’s recommendation is to progress

towards cost-based, revenue-sharing interconnect agreements, and this can only

be facilitated by the regulator.

Swings Must Be Overcome



Rajagopalan in his article contrasts the old and the new TRAI, which is now

soft towards incumbents as a backlash of its earlier form. What was inevitable

to the earlier TRAI has only been postponed. It is only a matter of time before

market pressures again push the present TRAI, DoT and the incumbents into a more

realistic acceptance of the present business dynamics.

In fact, though forgotten by many, the first real interconnect agreements

were put forward by the previous TRAI as early as 1998-99. These were outright

rejected by DoT since they jeopardized the revenue models of both BSNL and MTNL.

TRAI was then taken to court by MTNL for overstepping its mandate. The

regulatory body was dismantled, and then reconstituted.

Probably, it’s time for Round 2.

Arun Shankar former executive editor Dataquest

Events That Lead to TRAI’s Revision of Basic Telecom Tariffs...

October 2002



BSNL and MTNL challenge TRAI’s order directing them to publish their reference
interconnect offer and appeal to TDSAT. Their appeal is accepted

November



l Mobile operators
announce their intention to approach TDSAT objecting to Reliance’s offer of

unlimited mobility with their WLL-m CDMA services. COAI points out multiple

subscription services are only possible by using mobile switching centers not

allowed for WLL-m services

l

Soli Sorabjee representing the Union of India in the limited mobility case

pending before the Supreme Court, submits that cellular operators are repeatedly

using the process of court to delay the rollout of WLL services

December



l Reliance Infocomm
starts announcing details of its WLL-m services. Package deal includes Rs 14,400

for 400 minutes of outgoing airtime, incoming free, Rs 6,600 for handset, lock

in for 3 years; or Rs 500 for 400 minutes per month. TRAI objects to call

forwarding facility

l

Tata Teleservices rolls out its services in Delhi. Begins to face rough weather

with cellular operators on interconnect who refuse to formalize contracts with

it. With Reliance’s rollout round the corner it’s no more a whimsical game

l

Supreme Court asks TDSAT to rework its previous order of April 2002, ensuring a

level playing field between WLL-m and cellular operators

l

DoT sends a communication to TRAI inviting its opinion on allowing an increase

in the number of cellular operators

3 January 2003



l Mobile operators react
to Reliance’s tariff announcements by slashing cell-to-cell long distance

rates from Rs 9 per minute to Rs 3 per minute

l

Facing rough weather from mobile operators who now insist on reciprocal access

charges, WLL operators start routing their traffic through MTNL and BSNL

networks

8 January



l Facing increasing
pressure from Tata Teleservices and Reliance Infocomm, the Ministry of

Communication issues a directive to TRAI to solve the interconnection issue

between mobile and basic operators

l

BSNL, MTNL react to mobile operator announcements by slashing cell-to-cell long

distance rates to Rs 2.90 per minute

9 January



TRAI issues a directive to mobile operators asking them not to block calls
originating from WLL operators routed via MTNL and BSNL

14 January



Mobile operators declare war on TRAI. Accuse it of bias in favor of WLL
operators and of maintaining a silence on their pleas for transparent and fair

treatment

16 January



TRAI issues show cause notices to mobile operators for defying its directive to
provide immediate interconnectivity to WLL operators. Gives them 72 hours to

explain the reasons for defying its authority. MTNL and BSNL support TRAI and

reciprocate by blocking calls from mobile operators on their networks

17 January



l Mobile operators
approach TDSAT objecting to the show cause notices issued by TRAI to them and

threats by MTNL and BSNL to block traffic through their networks

20 January



l Mobile operators meet
Pramod Mahajan, the then Minister for Communication on his invitation and brief

him on the issues of cost based interconnection. A temporary truce is made with

WLL operators on the conditional acceptance that the interconnect issue would be

resolved

l

The mobile industry denies that any interconnect agreement has been signed with

Reliance Infocomm, contrary to reports appearing in the press

22 January



l MS Verma, chairman,
TRAI, blasts mobile operators for putting pressure on the regulator and trying

to influence judicial proceedings

l

Mobile operators announce all mobile-to-mobile incoming traffic to be free,

taking the first step towards moving to ‘calling party pays’ tariff

structure

26 January



TRAI removes subsidies on local call tariffs for basic telecom operators as a
first step towards moving to a cost based structure in this area. Also announces

reciprocal access charges between basic, WLL and mobile services