WLL(M): Pass on the Benefits Please

WLL(M) has been touted as the poor man’s mobile but the cost structure will
perhaps never justify the description. If one compares the costs of WLL(M) and
GSM, one will notice a huge difference between the two. In case of GSM, the
rental varies from Rs 200 to Rs 500, depending upon the scheme that one opts
for. On the other hand, in case of WLL(M) there is a floor price of Rs 450 per
month and a ceiling of Rs 550 per month, which means that service providers
cannot go below Rs 450 per month and cannot charge more than Rs 550 per month.
Moreover, monthly rentals for both (rural and urban) subscribers are the same.

The tariff exercise on WLL(M) was undertaken in the year 2000 and the WLL(M)
tariff was announced on 1 May 2001. But the time has now come for TRAI to review
the tariff structure. Equipment prices in telecom have been falling every year.
Infrastructure costs on the wireless front have also been decreasing. Even on
the demand front, there has been a considerable increase. With TRAI dismissing
the COAI case on the WLL(M) front, there will be a further increase in demand
and deployment of WLL(M). It is understood that all basic service providers are
planning for a large-scale deployment of WLL(M) infrastructure, with Reliance
Infocom leading the race. Other players include BSNL, Tata Teleservices, HFCL,
Shyam Telelink, and HughesTele.com. This sudden increase in demand of WLL(M)
handsets will help bring the cost of WLL(M) infrastructure equipment at par with
cellular infrastructure prices. According to industry sources, the price of
WLL(M) infrastructure will hover between Rs 5,000 and Rs 6,000 per line.

Arriving at Estimations

Assuming annual recurring expenditure (ARE) of 22 percent, estimated costs
can be brought down from around Rs 550 to Rs 160 by taking certain measures (see
Table 1). These measures include reduction of capital expenditure, keeping
traffic at 56 mE (milli Erlang) and not at 80 mE, and not including handset
subsidy in the WLL(M) tariff structure. The reduction in capital expenditure
results in a reduction of Rs 200. Tabulating traffic at 56 mE and not at 80 mE
results in a further drop of Rs 50. And by not incorporating the handset subsidy
in the tariff prices further fall by Rs 140.

TRAI, while computing the earlier WLL(M) tariff, had taken a peak hour
traffic of 80 mE per subscriber based on actual wireline usage. But when one
talks about the mobile user, wireline usage decreases, since WLL(M) is not used
by bulk user segments like PCO and EPABX. So the usage will be much lower and
while computing the rental one should look at a realistic traffic figure of 56
mE.

It seems that in the earlier computation, TRAI had included the handset price
in the capital expenditure per subscriber. But since the cost is borne by the
subscriber, one should not consider it while computing the capital expenditure
per subscriber for WLL(M). If service providers are offering subsidy on the
handset than the subsidy element has to be incorporated in the capital
expenditure.

According to TRAI, the service provider has to deploy one BSC per SDCA, which
does not make any sense as the lowest configuration of BSC available presently
is 1,900 Erlangs, which can support about 34,000 subscribers for 56 mE traffic.
But there can be SDCAs with 5,000 and 20,000 subscribers and if one deploys the
lowest configuration the BSC capacity is not optimally utilized, thereby
increasing the capital expenditure per subscriber.

The capital expenditure has reduced because of the drastic reduction in
import duty from an effective import duty of 38.74 percent to 5 percent. Price
of the base transmission station (BTS) infrastructure has also come down by
around 30 percent whereas BTS electronics costs have reduced by around 50
percent. The base switching center (BSC) price is now one-fourth of the earlier
price. Even the insurance, freight and forwarding charges have reduced by around
2 percent. Dark fiber costs for the providing backbone infrastructure have also
reduced by 40 to 60 percent.

It seems that TRAI is planning to do a major tariff rebalancing in months to
come and before finalizing on the WLL(M) tariff, the regulator should look at
the finer points more carefully and not come out with a tariff similar to what
the regulator announced in The Telecommunication Tariff (Twentieth Amendment)
Order, 2002 announced on 14 March 2002 for international long distance.

It seems that ILD operators are planning to market ILD services at rates 50
percent cheaper than those announced by TRAI a month ago. The question that
arises is: how can prices vary by up to 50 percent within such a short span of
time? Moreover, when service providers are looking at providing services at a
cheaper rate then why is the TRAI Tariff Order placing ILD tariffs at a premium?
Sure, it’s the technology that is encouraging service providers to offer
services at cheaper rates. But then shouldn’t TRAI also come out with a
consumer-friendly tariff structure? If a cost-based model is followed, WLL(M)
rentals may be placed between Rs 140 and Rs 170, and the handsets may come
closer to being what they have been projected to be–the poor man’s mobile.

Pravin Prashant