Krishnan Thiagarajan

Recent policy moves by the Government on the telecom sector could help bring tariffs down to benefit both operator and customer.

OVER the past few months, policy decisions in the telecom sector had virtually ground to a halt, both in the run-up to the Parliamentary elections and in the post-Parliamentary election phase as the new government took time to settle down.

During the past couple of weeks, however, action on the policy front, especially in the cellular arena (applicable for both GSM and CDMA operators) has started showing signs of picking-up again. There have been encouraging signals on at least four fronts: licence fee reduction, access deficit charge review, consultation for spectrum allocation and consolidation within the cellular sector (with Hutch acquiring Aircel operating in the Tamil Nadu/Chennai circle recently). Each of these moves and more so, in combination, if carried to fruition, may have a significant bearing on the tariffs charged to consumers in the coming months and also dictate the competitiveness/profitability of the key operators in the cellular sector.

Seen in the backdrop of the slowing incremental GSM cellular subscriber additions at about 1 million subscribers in April and May this year, these policy moves appear even more relevant and imperative. Over the past five months (between November and March 2004), the incremental subscriber additions averaged 1.3 million, according to the subscriber numbers from the Cellular Operators Association of India, spearheading the interests of the GSM cellular camp.

Irrespective of whether you are a GSM or CDMA cellular subscriber, tracking these key policy moves will be of significance. It is estimated that the total burden to the sector on account of the licence fees, spectrum and access deficit charges will be about 25 per cent of industry revenues:

Licence fee reduction
: The Department of Telecommunications recently favoured a path-breaking move of rationalising the annual licence fee payable by the cellular (or unified) service providers. From the existing levels of 8–12 per cent of adjusted gross revenues, the DoT has recommended a reduction in the licence fees to cover only administrative and regulatory costs. Going by recommendations made earlier by the Telecom Regulatory Authority of India (TRAI), there are indications that annual licence fee may be pegged at 5 per cent (for Universal Service Obligation such as connecting remote and rural areas) and 1 per cent (towards administrative and regulatory costs). At present, the private GSM operators alone pay nearly Rs 1,000 crore to the Government as annual licence fees. A reduction in the licence fee will go a long way in offering flexibility to the cellular operators to make their post-paid plans more attractive (to wean subscribers away from prepaid plans), introduce greater innovation in their service offerings and also invest aggressively in network expansion.

Access deficit charge
: The TRAI has initiated the right policy step by reviewing the prevailing access deficit charge (ADC) regime and recommending a switch to a revenue sharing formula. In a preliminary review, TRAI has recommended that ADC payable to BSNL be scaled down to Rs 1,400 crore — Rs 3,400 crore for the September 2004-October 2005 period, down from Rs 5,300 crore estimated for the previous year. This, along with the switch to the revenue share formula, will not only bring down cellular tariffs with effect from September, but also afford greater competitive flexibility to fix tariffs in line with market demands.

The ADC regime in the existing form, involving payment for each type of calls, ranging from Rs 0.30 to Rs 0.80 per minute for domestic long distance call and Rs 4.25 per minute for international long distance was just not working. ADC is a levy payable by the private operators mainly to the incumbent, Bharat Sanchar Nigam, for its investment in servicing remote and rural areas. According to the regulator, the existing collection mechanism for ADC has practically broken down, with extensive misreporting of roaming and long distance calls and poor payment response to BSNL.

Spectrum allocation
: Considering that spectrum is a scarce resource, TRAI has done the right thing by opening up the issue of spectrum allocation and usage charges for consultations by all the stakeholders involved. In the case of spectrum allocation, spectrum usage charges as a percentage of revenues (say, 2–6 per cent levied for GSM operators) have become outdated as there is no incentive for the operators for efficient usage of spectrum and invest in mobile infrastructure. Moreover, this charge is also probably excessive in relation to the use of administering and regulating this scarce resource. Among the options available, research seems to suggest that «spectrum auctions» may be the best route available for release of new spectrum by the Government to ensure that this is utilised to the optimum extent possible.

If the industry has to sustain the momentum it has gathered over the past year, favourable moves by the Government on these three fronts will hold the key to the future.