The Hindu : How consumer expectations cross the regulatory path

Online edition of India's National Newspaper
Monday, Feb 03, 2003

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Business

How consumer expectations cross the regulatory path

Telecom users have come to expect a continuous reduction in tariff. There will be limits to how often the service providers can oblige. Moreover, reliability and quality of service are as important as affordability, says C. R. L. Narasimhan.

THE NEW tariff regime proposed for the telecom services has proved extremely controversial. Even as the regulator, the Telecom Regulatory Authority of India (TRAI), says that there is no going back, the different kinds of service providers have joined consumer organisations in the snowballing protest. Inevitably there are allegations of powerful lobbies influencing the policy.

However, the proposals for a change in the tariff structure cannot be examined ignoring recent happenings in the fast-changing sector. The failure among the service providers to reach an inter-connect arrangement has created a virtual anarchy. First, the mobile cellular operators refused to provide interconnection to the new limited mobility operators (WLL), thereby defying the constituted regulatory authority. Soon the public sector Bharat Sanchar Nigam Ltd. (BSNL) and Mahanagar Telephone Nigam Ltd. (MTNL) hit back and the cellular operators were disconnected from the vast networks of these two. A piquant situation arose where a call in one network was stranded right there.

It was the failure to reach an interconnect agreement that ostensibly caused the entire ruckus. According to many commentators, the protests, unseemly as they were, are only symbolic of the failure to comprehend the sweeping changes taking place in the telecom arena. The regulator as much as the service providers will have to share the blame.

The near universal view is that the cellular lobby's open defiance was a telling demonstration of the TRAI's ineffectual hold over the operators in a fast changing scenario. Fortunately the defiance did not last long but the lasting impressions from the episode have conditioned practically everyone to look at the subsequent TRAI's proposals in the third week of January for a new tariff regime (including interconnect charges) with a measure of disparagement.

The TRAI's recommendations were in the making for several months before the latest announcement. It is a moot point as to whether the unsavoury developments such as the fracas over interconnect would have happened if the new tariff regime had been in place a few months earlier.

More likely, the telecom regulator has had a thankless task in trying to cope with the changes. There has been the crucial task of meeting the rising expectations from the consumers who have grown exponentially recently across all types of telecom services.

The passage from scarcity to abundance has inevitably created a few major problems for all the stakeholders and the regulator. As every one knows competitive forces when unleashed in a sector previously closed and then cartelised (by the cellular companies) will inevitably push up consumer expectations. Telephone rates had fallen dramatically in segments such as national long distance and in cellular operation. After Reliance Infocomm's spectacular announcement towards the end of last year there was no way consumer expectations of a cheaper telephone service could be moderated to more rational levels.

The context explains why the TRAI's recommendations for a new tariff /interconnect regime could never have been popular even if it had not recommended an increase in the basic telephone charges (increased rental, reduced call duration and fewer free calls). This category of telephone users is numerically the largest. It is they who were benefiting from the opening up of the telecom sector by having a choice and more importantly through successive reductions in tariff. The new proposals also seem to favour cellular users although it is not clear how.

Rationale of TRAI proposals

Amidst the cacophony of complaints and protests against the TRAI's proposals, certain vital issues are apt to be lost sight of. The new tariff (and interconnect charge) regime addresses the telecom sector as a whole — basic services, cellular as well as the new WLL services.

Basic services (even now) largely provided by the government owned companies have had social obligations as well (rural telephony for instance). Besides, in an era where telephone was a utility (scarce and rationed) commercial considerations in pricing of calls were probably not thought of, a fact aided also by the government monopoly.

Cross-subsidisation of uneconomic local call tariff by national and international long distance tariff was the means. As TRAI points out such cross-subsidisation is no longer possible when long distance calls cost much less. Moreover, the country's sole international telephony player VSNL moved into the private sector and is facing competition by the day. In short, the traditional avenues of subsidising the basic (government owned) services have practically disappeared.

The TRAI has therefore recommended two policy measures (a) increase their "below cost" prices to recover at least a portion of the uncovered costs and (b) levy an access deficit charge (ADC) to recover the cost of access, that is, to connect to the vast network now operated by different types of service providers.

The ADC is relevant for basic operators — their rentals are heavily subsidised, they have to provide for free calls besides charging uneconomic rates for a portion of their calls.

For the other two categories — cellular mobile and WLL operators' — the TRAI's view is that the ADC component is not relevant. However, according to the regulator, their operational cost element is higher: the average minutes of use per subscriber are lower when compared to fixed lines. Hence their cost per minute for determining charges works out higher. Both the interconnect regime and tariffs are interdependent. The ADC is to build into rentals and call charges.

As affordability is an important concern, the TRAI has had to ensure that the tariffs with the ADC built in do not become too high. Since many more people use the basic network for making short-distance calls, they have to be protected against the expected price rise. In that context the TRAI has recommended shifting the burden of ADC to the long-distance call. This recommendation has also become controversial.

In relation to the prevailing competition with the other service providers — WLL mobile and cellular, the basic operators ought not to suffer through a high ADC loaded tariff.

The above plus some concessions to senior citizens and rural subscribers form the basis for the new tariff including an interconnect regime.

Abundant choice

ARE THE extreme reactions to the new regulatory regime justified? Are the transition problems of the telecom sector different from those of other sectors being opened up? Answers to such questions are important if only to gain a perspective on what has been a painful transition in a sector that to begin with had much in common with other key infrastructure areas.

Yet unlike, say, power or even petroleum, the telecom sector has witnessed fast growth and attracted plenty of investment, including foreign investment. Most dramatic have been the changes from a consumer's standpoint. For many, having a reliable telephone connection has been a luxury. It is only after the sector was thrown open that the question of choice arose. Today with new services such as those being offered by the CDMA players, becoming common, there is an abundance of choice. It may not be easy for the uninitiated to choose a service and "a plan'' without some unbiased outside help.

The opening up has not only meant new players, but a refocus on the role of the dominant public sector players BSNL and MTNL. Their past baggage has been a deterrent to the implementation of uniform telecom policy. The regulator probably feels it most. Then there is the well-discussed role of technology which some of the newer players are accessing to implement a slew of services which go well beyond the traditional function of a telephone.

Additionally, technology is leading the policy towards a situation where the existing divisions such as local, national long distance and international long distance may get blurred. And as the persistent controversy over WLL providers shows, it is nearly impossible for regulation to bottle up technology driven changes.

Finally, the big issue for now is not whether the regulator has chosen to be irrationally unpopular. In fact the logic behind the new tariff regime is sound. However, one needs to know whether the TRAI has had access to audited data to make its costing exercises complete and reliable. — CRLN

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