ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

Telecom: Tariffs and Rural Telephony

Tariffs and Rural Telephony With mobile operators Airtel and Idea slashing their international long distance tariffs by up to 50 per cent on March 2, the process of passing on the benefits of a lower interconnect charge regime to customers has begun, and inevitably other operators must follow suit. On February 23, the Telecom Regulatory Authority of India (TRAI) amended its interconnect user charge (IUC) regulations

TELECOM

Tariffs and Rural Telephony

W
ith mobile operators Airtel and Idea slashing their international long distance tariffs by up to 50 per cent on March 2, the process of passing on the benefits of a lower interconnect charge regime to customers has begun, and inevitably other operators must follow suit. On February 23, the Telecom Regulatory Authority of India (TRAI) amended its interconnect user charge (IUC) regulations – which specify the costs for call origination, transmission and termination on a network – to accommodate the ‘OneIndia’ tariff plan announced by the minister of communications and IT earlier in the month. The OneIndia scheme, announced with much haste and fanfare under the very obvious diktat of the Department of Telecom (DoT), offers a tariff rate of Re 1 per minute for an STD call whether made from a mobile or fixed line, albeit with different (and higher) rentals. First, the DoT is well beyond its remit to set tariffs that will perforce require an “independent” regulator to toe the line on a number of controversial issues. Second, since the national long distance (NLD) segment was first liberalised in 2001, competition and regulatory intervention have consistently effected declines in prices as they reflect costs more accurately. The NLD and international long distance (ILD) tariffs prevailing in 2003 were even lower than

Economic and Political Weekly March 11, 2006

the targets of the tariff rebalancing exercise, which was set into motion by the Telecom Tariff Order of 1999. Besides, thedramatic cut in entry and licence fees for NLD and ILD operators in November 2005, especially now that users will be able to choose their long distance carriers, would have brought down tariffs by the entry of more players and competitive reductions, regardless. The introduction of low tariffs by administrative fiat in the current environment then makes little sense.

TRAI has, accordingly, made the shift to an access deficit charge (ADC), based on revenue share, sooner than planned, and cut the ceiling on carriage charges to 65p per minute, irrespective of distance. Now telecom operators will pay 1.5 per cent of adjusted gross revenues as ADC, excluding the revenues earned from rural subscribers, in lieu of the earlier minute-based levy on NLD. ADC will, however, continue to be levied on a per minute basis on ILD calls, though at a 50 per cent lower rate. The shift to a revenue share has been estimated to result in a 33 per cent fall in ADC collections for BSNL. The ADC has been a controversial issue since its imposition first in 2003. It was meant to compensate BSNL for the below cost rentals and tariffs it had to provide in rural areas in order to enable access to telecom services and was to be phased out eventually. However, opacity about the way the funds are being used as well as the amount actually collected as ADC, which has tended to fluctuate wildly, has not inspired much confidence. More importantly, there is still a case for keeping tariffs and rentals in rural areas low, as the penetration of telecom services there remains extremely thin. Whether the new amount deemed to be collected as ADC (Rs 3,200 crore) will be enough to cover these operations, without adversely affecting the finances of BSNL, remains an open question. Moreover, if ADC is critical to BSNL’s rural operations, how will they be financed when the charge is scheduled to become zero per cent in 2008-09 and merged with the universal service obligation (USO) regime?

A not wholly unrelated point, of course, is that in spite of low tariffs and rentals in rural areas, the growth of basic services (with fixed line and wireless in local loop technologies) has decelerated sharply – from 23 per cent in the financial year 1999-2000 to 3.3 per cent in 2003-04. According to ICRA, incremental fixed telephone additions declined from

0.487 million in 2001-02 to 0.112 million in 2003-04. The failure in erecting the necessary infrastructure in rural areas, in spite of the existence of the USO fund, and on the part of both private and public players, is writ large on the present state of affairs. The penetration of mobile telephony in rural areas, where revenues tend to be on the lower side and the scope for value-added services limited, also remains low. Even the OneIndia plan, touted to herald the “death of distance” has ambiguous benefits for rural customers as 75 per cent of them do not opt for an STD facility at all. In fact, the plan actually raises the price of a local call in rural areas by 20 per cent (compared to the subsidised cost of 80p previously), charges a higher rental than before and does away with free calls.

Nevertheless, volumes in the NLD and ILD segments at the higher end of the market are geared to increase and the reduction of the ceiling on carriage charges, for distances over 50km, can only be a good thing. The sticking point remains the appallingly low rural tele-density of 1.6 per cent, and the perennial question of what must be done about it.

Economic and Political Weekly March 11, 2006

Dear reader,

To continue reading, become a subscriber.

Explore our attractive subscription offers.

Click here

Comments

(-) Hide

EPW looks forward to your comments. Please note that comments are moderated as per our comments policy. They may take some time to appear. A comment, if suitable, may be selected for publication in the Letters pages of EPW.

Back to Top