It’s Time for Takeoff

Three developments in the recent past are set to have a profound impact on
the business prospects of basic telecom operators. The first relates to the Telecom Dispute Settlement Appellate
Tribunal ruling dismissing the petition by the Cellular Operators’ Association
of India against the government’s decision to allow fixed line operators to
provide limited mobility through wireless in local loop (WLL). The second is the
Telecom Regulatory Authority of India order hiking the rentals of fixed line
phones for commercial subscribers. A third is the opening up of Internet
telephony from April 1, 2002.

The legal battle between the two lobbies over the issue of limited mobility
had created uncertainty in the roll out plans of basic operators. Allowing WLL-based
limited mobility will enable basic operators the ease of quick rollout in
residential and clustered areas. There is also a cost advantage since the cost
per WLL line, Rs 15,000, is much lower than the Rs 35,000 per line in fixed
telephony. "Business plans of most basic operators have a significant WLL
component. The ramifications of this decision are bound to be huge on the
sector," says Rothin Bhattacharya, executive director, KPMG Consulting.
Basic operators will now be in direct competition with cellular operators. At Rs
1.20 per minute for a three-minute outgoing call and free incoming calls,
cellular operators would find tough competition in WLL based services.

SC Khanna, secretary general Abto (Association of Basic Telecom Operators),
brushes aside fears of impact on the cellular sector, "The mobility would
be limited to the SDCA (short-distance charging area) so there is really no
competition to cellular operators who provide roaming among other value-added
services." Bhattacharya is also optimistic that there is room for everyone.
"Our growth projections of 40-45 million additional wireless subscribers in
the next four to five years demonstrates that there is room for all

The order by the three-member bench has placed technology above business
interest, "There cannot be any legitimate expectation that no new
technology will evolve and if any new technology comes, it will not be allowed
to be adopted by any competitor." The second development in which TRAI
hiked the rentals for commercial users of basic telephony to 22%-33% depending
on the capacity of the local exchange comes as another breather to the sector.
The regulator has slashed the number of free calls for urban commercial
subscribers to 30 calls from 60 calls per month and 45 calls from 75 calls for
rural commercial subscribers from April 1, 2002.

"Although the interim benefits are low, at least a separate commercial
category has been created," says Khanna of ABTO. Since basic telephony
tariffs are not cost-plus based (do not carry a profit margin on the cost
incurred in making the call), the increase is seen as a welcome step. The
increase in rental is seen as part of the tariff re-balancing exercise specified
in the Telecom Tariff Order 1999. Not everyone is happy. Rajiv Mehrotra,
chairman, Shyam Telelink, dismisses the hike in commercial rental as a farce.
"Why should commercial customers enjoy subsidized services? Let market
forces decide the tariff structure. Look at the way the price of cellular calls
have dropped from Rs 18 to Rs 1.50," he says.

The biggest beneficiary from the increase in rental of commercial customers
would be MTNL and BSNL, who would both earn an additional annual revenue of Rs
250 crore and Rs 550 crore, respectively. The third development allowing
Internet telephony from April has caught basic operators on the left foot. On
one hand, they have been fighting for removing regulation in adopting new
technology–WLL-based limited mobility. On the other hand, they are
uncomfortable at the prospect of ISPs providing Internet telephony.

Although there were misgivings about the new service eating into the
marketshare of basic service operators, it is now clear the sector would not be
affected due to factors like lower PC penetration and banning PC to phone within
the country.

Second, the traffic pattern in domestic fixed services has been such that 72%
calls are made during peak hours and 28% during off peak hours. Service
operators expect a minor impact of 4%-5% traffic diversion in the 28% users who
may opt for IP telephony for cheaper communication. Says T Narasimhan,
president, Corporate Affairs, Shyam Telecom says, "Since voice quality in a
IP-based public network is not yet mature, the 72% peak hour traffic is unlikely
to get affected. These are quality customers for whom quality of service is more

Balaka Baruah Agarwal/CNS

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