Rock bottom rates and tariff wars among mobile operators might soon be a thing of the past with sector regulator Trai deciding to intervene in the market and end years of forbearance. Operators would then have to present a business case each time they come out with a tariff package. Only once the regulator is convinced the new tariffs are profitable would they be approved.
With the Indian telecom market’s growing maturity, Trai had moved to a forbearance regime in 2004, wherein operators did not require prior approval for tariff packages, but were left to market forces. Operators simply had to file their tariffs with the regulator within a week of implementing them. Trai officials said that work on examining tariff packages has begun and that the regulator would soon invite companies to present their business case. The exercise would also cover existing tariff packages. “For the long-term health of the telecom sector and to ensure that it remains attractive to investors, we have decided to intervene in matters relating to tariffs,” confirmed a Trai official. “If we need to add another 500 million subscribers by 2012, the sector needs to be attractive for investors so that companies can raise money to fund network expansion. There should be a balance between the interests of stakeholders--consumers, industry and government--for the sector to remain healthy,” the official added. Bharti Airtel CEO Manoj Kohli had recently urged Trai to look into predatory pricing, where operators offer tariffs at below cost. How Trai tackles the issue remains to be seen since it would be easier for incumbent operators with economies of scale to prove a business case than newer operators. The shift in Trai’s stance on tariffs is significant because with eight new operators planning to start their services shortly, a fierce tariff war has already begun among operators. The race to the bottom has already started taking a toll on the industry: telecom stocks have lost their lustre; the market cap of leading companies has declined; and the revenue and profitability of even a top performing company like Bharti Airtel have slowed.
One example of just how cut-throat competition has become, new operator Unitech Wireless has offered local calls at 29 paise a minute on all networks. Since most calls from a new operator would terminate on other operators’ network, it would have to pay 20 paise a minute as termination charges, leaving it with only 9 paise.
“One has to examine the profitability aspect in each tariff package. If a company presents a case of breaking even within the fourth year of operations, it is understandable. But if it reaches that point after 14 years, then there’s no business case,” said an official
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