Will TRAI’s approach to fix floor price for telecom services help improve the financial health of the industry?

The Telecom Regulatory Authority of India (TRAI) has, on December 17th, released a Consultation Paper on Tariff Issues of Telecom Services.

TRAI believes that the telecommunications sector in India has witnessed several changes in the past few years in terms of the tariff offerings of various telecom service providers. The authority says that this has not only resulted in an exponential increase in the use of telecom services but has also resulted in the tariffs of telecom services in India to be the lowest in the world.

In the last few months, many concerns have been raised about the health of the Indian telecom sector and the demand to fix a floor price for telecom services.

The Department of Telecommunications recently forwarded representations received by it from the telecom service providers regarding various issues, inter alia, including a plea from some of the Telecom Service Providers (TSPs) seeking floor tariff fixation by the regulator/government.

In this regard, a meeting was also held with the TSPs to discuss the tariff-related issues. The TSPs raised various concerns in that meeting. The major private TSPs have, meanwhile, announced a revision in their tariff offerings, applicable from the 3rd and 6th of December 2019 for the different TSPs.

The hikes announced range from 15 to 50% increase in tariffs for the various tariff offerings of these TSPs. Subsequently, the Authority received a detailed representation from Cellular Operators Association of India (COAl) dated 3rd December 2019 seeking fixation of a floor price by the Regulator.

TRAI says it had delayed making a decision on this matter on floor price-fixing for valid reasons. The regulator believes that it gives the service providers the freedom and flexibility to design their tariff offerings as per the demands of the market. It gives free play to the forces of healthy competition and has resulted in an exponential growth in the Indian telecom sector in the past two decades.

Most economists, according to TRAI, also advise against the fixation of price controls as it leads to economic inefficiencies, consumer harm, market distortions, and reduced innovation. However, ensuring the provision of ever-increasing data consumption and a good Quality of Service requires a lot of investment in maintaining and improving telecom infrastructure.

The fast pace of technological changes in the sector requires huge capital investments. The telecom sector is the infrastructure provider for many other sectors of the economy. Thus, making sure that the telecom sector remains healthy and its orderly growth is equally important. These are crucial issues currently impacting the telecom sector and a detailed deliberation by all the stakeholders is necessary to find the best way forward. Accordingly, the Authority has decided to float a consultation paper on the issue so that all the stakeholders in the value chain can get an opportunity to fully participate in the deliberations and give their views on such crucial issues affecting consumer interest.

Considering this aspect, a consultation paper on “Tariff Issues of Telecom Services” has been issued to invite comments from all the stakeholders, on various issues relating to the tariff in the telecom sector. The consultation paper on "Tariff Issues of Telecom Services" has been uploaded on TRAI's website (www.traLgov.in). TRAI wants the written comments on the issues raised in the consultation paper from the stakeholders by 17th January 2020 and counter-comments by 31st January 2020.

In response to TRAI’s move on floor pricing, COAI’s chief, Rajan S Mathews, says, “This is a welcome step in the right direction. COAI has always maintained that in a CPP (Calling Party Pays) format that we follow in India, there should always be cost-based IUC, in line with global practice. We look forward to continuing support from the government and regulator to address the severe financial stress in the telecom sector.”