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

operators."

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

important."

Balaka Baruah Agarwal/CNS