Are cell operators customer-friendly?

The current campaign by the cellular industry against the telecom regulator reminds one of the genius of Mark Antony at Caesar's funeral.

The idea is whip up passions and get the course of policy changed to their advantage. But there is nothing wrong with that. Every industry association or lobby is set up for that very purpose.

But who represents the consumer? The cellular industry itself!

In the name of the consumer, a virtual attack on the credibility of the regulator has been appearing almost daily in the newspapers. The cellular operators in India are customer-friendly no doubt, but when it suits them.

While their performance over the past few years on various indicators, such as tariff declines, subscriber growth and value-added services, has been commendable, it is important to see the flip side as well.

The purpose of this piece is to set the record straight and provide more than just selective information to show that the cellular industry in India has been the beneficiary of policy changes in the past.

There is a virtual unanimity in the business press today in denouncing the record of the Telecom Regulatory Authority of India in consumer protection, especially in the present cellular versus wireless in local loop mobility or WLL (M) debate.

The detractors of TRAI are many and their complaints range over several issues. Indeed, some of them fire off their cannons in all directions.

Thus, in an open letter to the chairman of TRAI, that appeared nationwide on January 13, the cellular industry has implicitly assumed the services that they offer (complete mobility) is a perfect substitute for the limited mobility services that basic operators offer, and thus are demanding identical terms to those available for WLL (M).

It is a basic tenet that you see what you want to see. So how does one respond to the cellular industry?

Let's cut back to 1995, when cellular services were first launched in the country. No independent regulator existed then.

Regulation was another task performed by the then department of telecom.

Entry to the cellular market was limited to two players in each service area (what economists call duopoly) and was auctioned to the highest bidder.

The licence fee bid amount was determined by the operators themselves based on their projections and estimation of India's market potential.

The rules of the game were clear, and the tariffs were embedded in the licence document. Thus Rs 156 as monthly rental and Rs 16.80/8.40/4.20 as airtime charges were known to operators.

It was also known and acceptable that interconnection or access charges will be separate and payable by the consumer.

While all the rules of the game were clear, things were not all well with the cellular industry.

And not surprisingly. It is well documented that the low monthly rental and high airtime charge of up to Rs 16.80 a minute encouraged subscription, but not usage.

Thus, when the regulator was established and began functioning in 1997, the cellular industry collectively knocked on its doors and sought its assistance to rationalise tariffs.

The regulator obliged, and with effect from March 1, 1999, cellular rentals jumped from Rs 156 to Rs 600 a month, while airtime charges were reduced to Rs 6 a minute.

Crucially, this was done by TRAI with data and inputs being provided by the cellular operators in a model that provided for a mark-up on cost.

The industry needed a shot in the arm at that time and TRAI provided the much-needed tariff rationalisation because it felt that it was the right thing to do.

The industry was pleased but not completely so, for cellular operators were still carrying licence fee liabilities on their books -- licence fees that they themselves had bid.

Quick on the heels of tariff rationalisation for cellular mobiles, came other announcement that further improved business conditions for the industry.

A migration package was announced which meant that the licence fee bids by cellular operators at the time of entry would now be determined on the basis of gross revenue earned.

Thus, with effect from August 1, 1999, migration from fixed licence fees to revenue share licence fees became effective.

All but one cellular operator perhaps benefited from this change.

Along with the migration package came a condition that exclusivity of the licence was to be done away with -- while accepting the migration package, operators also had to accept unlimited competition in the cellular market as part of the concession package.

Two major events, tariff rationalisation and migration had occurred while a third demand of the cellular industry -- introduction of the Calling Party Pays regime -- almost happened, but with the intervention of the High Court of Delhi on a technical matter.

But that is another story and perhaps not relevant to this piece.

Two of three concessions in the space of six months is not a bad track record for any industry. But all this came at a ‘price' for the regulator.

TRAI was branded as anti-poor and pro-cellular, elitist and anti-consumer, much in the same way that TRAI is accused of being the darling of mobility, albeit of the limited variety.

The pendulum for TRAI has swung the other way, and I daresay it will continue to in the future, as sure as the boom-bust cycle will occur in our national economy.

The truth is that TRAI is for the sector and anyone who sees it differently does not recognise the complexities of regulating the telecommunications sector.

(Incidentally, telecommunications is regulated worldwide, wherever private participation exists, and decisions not to regulate are also taken by the regulator.)

Naturally, decisions of TRAI will have redistributive effects among stakeholders, but that does not imply that its decisions are motivated.

For the record, the final decision to introduce limited mobility under the basic service rubric was taken by the government, although based on the recommendations of TRAI.

In the recommendations, TRAI recognised that cellular operators would feel the pressure of competition from WLL (M) and therefore recommended ameliorative measures to address the level-playing field issue.

Thus, the licence fee was further reduced for cellular operators, but the industry feels that this is not enough. They have demanded identical entry fees and interconnect regulation as applicable to basic operators providing WLL (M).

These demands may not be acceptable universally. On the one hand, the two services, cellular mobile and WLL(M), are not perfect substitutes since WLL (M) is available only within a short distance charging area (SDCA) without the availability of inter-SDCA 'roaming.'

On the other hand, and perhaps more importantly, licence fee paid from 1995 through 1999 was paid for the privilege of being in the market at that point in time, when airtime tariffs were up to Rs 16.80 a minute and virtual monopolies existed in several service areas.

Eight years later, that contract cannot be renegotiated, merely because of an 'adverse' policy decision by the government that became applicable in 2001.

Cellular operators have gone on record saying that they welcome competition.

In Economics 101, we are taught that competition destroys privileges and opens up many opportunities. That should be a good thing.

The cellular operators, however, claim that competition from WLL(M) is not fair competition. But competition is mostly unfair, depending on which side you see it from. The problem, this time, is that the shoe is on the other foot.

The writer is professor of economics, International Management Institute and Consultant, Telecom Regulatory Authority of India. The views expressed in this article are the author's own and should not be attributed to either organisation.