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Thursday, 03 November 2011 00:00
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Terminating telecom

Raja licencees get Trai help, older firms to get hit

 

Trai’s latest suggestion to have zero termination charges in three years has, predictably, got the older telcos up in arms and saying Trai’s methodology is dodgy, but more than that, it is not quite clear what Trai hopes to achieve. The idea is to lower call charges and to raise teledensity, but since termination charges are just one part of what firms earn—there are origination charges and carriage costs—if you reduce one, the other two will have to go up if telcos are to remain in the black. If termination charges fall, and the other two don’t rise, it stands to reason that telcos will invest less in rolling out networks to rural areas or to improve the quality of service. More important, there is no evidence that the existing regime of termination charges is unfair or the result of cartelisation—that’s when the regulator needs to step in. For one, none of the pre-Raja 6-7 telcos (and this includes two government-owned ones as well) has protested about it. Two, let’s say Trai is right and termination charges are excessive. Lowering them will lower Bharti Airtel and Vodafone’s revenues and will benefit a Uninor or a Sistema Shyam—but given the negligible market share the new firms have, how does hurting the bigger firms serve the consumer interest? Three, since there is enough competition, all rates are coming down—Trai’s ceiling for carriage rates is 65 paise but the market tariffs are 20-25 paise—so if they are not coming down for termination charges, that’s probably because there is no scope for reduction here.

Indeed, this is what telcos have been arguing since 2009 when termination rates were lowered to 20 paise—while Trai now says the rates should be 10 paise based on one method and 19 based on another, the operators say a rate of 35-40 paise is the cost-based one. This is why, when operators challenged the Trai in 2009, the TDSAT dismissed the Trai recommendation. Under a new Trai chairman, Trai then challenged TDSAT’s ruling in the Supreme Court—the Court asked it to do a fresh exercise on the rates. While the Court will now look at the various methodologies used, the real issue remains whether Trai even needs to intervene in a tariff regime where there is no evidence of cartelisation. What makes this even more ironic is that the Raja licensees who stand to benefit from Trai’s latest move may have their licences cancelled—Trai itself has recommended that 74 of the 122 licences be cancelled and, depending on how the courts finally rule, all Raja’s licences including the dual-technology ones may go the same way.

 

 

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