I have the numbers finally. Something that I have been alleging but could never get the right numbers because it was impossible to break in through the opaque structures.
Roaming charges have a rip off for years. I was wondering as to how does Airtel or for that matter any other company could declare profits (obscene profits) for years on end quarter after quarter. Sunil Jain has written an article in Business Standard which has been reproduced on Rediff.
Much of it was motivated by TRAI’s consulation paper. However, this paper is full of legalese and in case you don’t have patience, read the salient features below. (Emphasis mine)
The government, the order goes on to say, reduced the carriage costs (an important determinant of roaming costs) in February last year, but this “does not appear to have been fully reflected in the retail tariffs applicable for long distance calls and roaming services”.
Similarly, the sharp reduction in access deficit charges on long-distance telephony (again, a significant cost) was not fully passed on to customers; the sharp reduction in licence fees, from 15 per cent of revenues to just 6 per cent, was not passed on, either.
Just how much all this adds up to can be seen from the fact that while the GSM (cellular) firms charged between Rs 2.89 and Rs 3.09 a minute for outgoing local calls while roaming, Trai reduced this to Rs 1.40 in January this year; outgoing long-distance calls were charged at Rs 3.09-3.79 a minute and this was cut to Rs 2.40; incoming calls were charged at Rs 3.09-3.99 a minute and this was cut to Rs 1.75 a minute.
As for the funds-starved argument, the tariff order cites various reports, including one done for the Cellular Operators Association of India, to show this is not true. The PWC/COAI study, for instance, says EBITDA margins of the industry have grown from 15 per cent of net service revenue in 2000 to 44 per cent in 2005.
Trai has estimated this cost and it ranges from 7 paise per minute for the most efficient firm to Rs 1.09 for the most inefficient (for seven firms, it is around 25 paise and for five it lies between 30 and 50 paise).
While you’d expect the regulator to benchmark against the best, Trai decided to use a cost of 75 paise (of the 17 firms, only two have a cost higher than this-one is 76 paise and the other is Rs 1.09). So there’s a huge cost benefit already. In the case of long-distance outgoing calls, the benefit allowed is even more.
Even after taking an inflated 75 paise cost of roaming, Trai arrives at a total cost of just Rs 2.05 per minute-yet, it has allowed the firms a ceiling tariff of Rs 2.4 a minute. Trai says the costs incurred by the telcos when their subscribers send SMSs do not increase when they’re roaming, yet it chose not to regulate this-as a result, telcos charge Rs 3.45 for outgoing SMSs, a number that is far more expensive than even a phone call!
And the piece de resistance: Trai’s cost calculations were based on the 2003-04 subscriber data. Since the number of subscribers has trebled since then and the call minutes by even more, it is obvious the costs of offering roaming (the 7 paise to Rs 1.09) would have declined even more.
These firms are in hand in hand with the media and the Government to rip off the consumers and as highlighted above, none of the benefits have been passed on to the customers.
Sunil Jain then raises a pertinent point:
As for not having funds for funding capex, how do you explain the world’s largest cellular operator buying Hutch at an enterprise value of $20 bn if there aren’t huge profits to make?
So there it is. I have been vindicated. So far, the exact costs have never been reflected in the mobile bills. You get to pay a lot of “shit money” to pay those “executives” and line their pockets. All the while they shed crocodile tears about loosing money.
This is nothing but oligopolies and shutting out the new incumbent who would otherwise have to pay huge licence fees and administrative costs to set up brand new infrastructure.
(Another interesting article appears on the regulatory bodies for infrastructure on Rediff; while not related to the present write up but would nevertheless give you an idea about the way Government of India escapes accountability).
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