A floor price for telecom makes little sense PDF Print E-mail
Monday, 19 June 2017 03:41
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By advocating this, incumbents have hurt themselves as the perception is they are looking for protection

While the battle between Airtel/Vodafone/Idea and RJio hots up, it is apparent the incumbents are losing the perception battle. RJio, to begin with, changed the paradigm by offering ‘free’ voice calls and dramatically lower data tariffs. It then sought to take the play to a different level by arguing its superior VoLTE technology is what allowed it to offer both data and voice at dramatically lower prices. If the incumbents had invested in top-class technology, it argued, instead of having legacy networks as they did, they too could have offered the customer a better deal. In this context, the proposal that Idea Cellular made at last week’s Trai discussion, of having a floor price for both data and voice calls—some international examples were cited in this context—has cemented the view that the incumbents are looking for old-style protection. It also took the focus away from the fact that poor government policy has been largely responsible for bringing the industry to its knees; indeed, the industry was bleeding long before RJio came into the picture. All that RJio has done is to accelerate the decline.

In this context, the Interconnect Usage Charge (IUC) becomes critical. While Airtel has lost the first round of the fight with the Competition Commission of India (CCI) rejecting its petitions that RJio was indulging in predatory pricing, the IUC is critical since, if this is the charge that operators have to pay each time a call is made to another network—say, when an RJio customer calls an Airtel one, or vice versa—then the rate they charge subscribers has to take this into account. At a time when the government is finally getting serious about addressing the industry’s issues, it is shocking that the country’s courts, including the TDSAT, should be taking as long as they are on issues such as the IUC—challenges to IUC have been pending in the courts for several years now.

And while the IUC issue remains undecided, the telecom regulator, Trai, has shifted the play to another level by floating another paper on IUC, and one of the proposals is to simply abolish IUC. If the IUC is abolished, then the argument of the incumbents—that charging below the IUC is predatory pricing—becomes totally irrelevant. This is where RJio’s argument about technology becomes relevant since the better spectral capabilities of an LTE network does allow calls to be made at a near-zero cost. Ultimately, however, it is not technology alone that determines the IUC. If networks have been established, and spectrum bought, the IUC has to take this into account. More important, from the perception point of view, if the incumbents didn’t have legacy networks, they too can offer vastly cheaper calls on their 4G/LTE networks. But they can’t shut down their 2G networks since the bulk of India, and not just in rural areas, has legacy phones that will become useless if the incumbent telcos were to operate only 4G/LTE networks. In other words, the incumbents would do well to point to the social service they are doing by continuing to operate the older 2G networks. But since this argument has never been made by the incumbent operators, both the general public and the government believe it is their inefficiency which is the problem. How an industry that is so sophisticated failed to make this argument is not clear.




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