Department of Telecom (may your tribe decrease!) has recently awarded the spectrum to new players. They did that with aplomb and a lot of hoopla. Mishra ji, of TRAI fame, was needlessly fingered, perhaps by COAI (after being induced by post retirement lollies) that the whole process of awarding spectrum was unfair. So far, there has been no clearity about the methodology to award the spectrum to new players. However, entry of new players is surely going to worry the existing players.

In any case, it would make perfect business sense to cartelise because any fall in the prices would affect all the players together. The new players lack the required experience in rolling out services barring a few established players. Who would pay for the cost of advertisements, getting clearances from local authorites, setting up towers, ordering telecom equipment and the works. I believe that it would be introduction with bundled handsets and in order to survive in the metros, the new companies would play their “better network” card. The value added services are a passe’. Anyone with enough balls and brains would pimp for wireless internet and invest wisely in walled portals; imagine the convenience to shop from your handset and pay via SMS. It would require a generational shift in the way we live and work; nevertheless demand can be created and sustained.

Another wave of cheaper handsets would hit Indian shores. The much hyped Google’s initiative called as Android would pave way for better internet experience and with falling prices of smart phones, it would be an excellent platform for new handsets and better net applications.

I was surprised to see Reliance advertising for mobile blog applications. This is surely a brave thing to do; though their portal sucks. They can’t even get their web pages coded properly to conform to the standards. However, with steep prices per SMS, I wonder how many suckers would like to air their thoughts. I am sure that it would loose it’s steam soon. Or unless, Mr Money bags really wants to burn up huge pile of cash anyway advertising.

One burning question. Would the entry of new players really lower the prices? TRAI has mandated the phasing out the Access Deficit Charge payable to BSNL. In effect, that would make the calls cheaper if the existing players decide to pass on the benefits to the subscribers. I have my doubts about that because BSNL would go down fighting as the access deficit charge reflects in it’s annual profits; some MBAs (see I told you, I dont like them) conceal it as “earnings”. The new players would want to recoup their expenses and play the volume game. I doubt, really really doubt that the claimed 25paise for the local call would ever materialise. It’s like pulling out the rabbits from the hat and then claiming it’s magic.

Lets wait and watch.

Tags: Access Deficit Charge, Advertisement, Advertising, android, author, BSNL, COAI, Department of Telecom, Google, handsets, I hate MBA's, India, Internet, Mobile, Reliance, SMS, Spectrum, Telecommunications India, TRAI, Value Added Services, walled garden, Wireless

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).

Tags: Access Deficit Charge, Airtel, Business Standard, COAI, GSM, Hutch, India, Media, Mobile, Mobiles, Opera, Rediff, SMS, Telecommunications India, TRAI

The leading English Business daily does not agree with my opinion posted yesterday. I have permission to copy and paste the articles from their website; they have horrible archival system. All my previous outgoing links to their website are dead. I reproduce the write up in their entirety and link it accordingly. In case, anyone from Business Standard has any objections, please do write in to me on my email address.

My comments follow the post.

Dayanidhi Maran became the country’s (youngest) communications minister because his granduncle (M Karunanidhi), who leads an important constituent of the United Progressive Alliance (UPA) wanted him there; so it is only appropriate that he step down when he has lost favour with the same granduncle. How he lost favour is a fascinating story in its own right, since it involves a clash between business and media interests and a political dynasty. A Maran-owned newspaper published an “opinion poll” on who should succeed the ageing Mr Karunanidhi in Tamil Nadu as head of the Dravida Munnetra Kazhagam and as chief minister. Mr Karunanidhi thought this was designed to cause a split between his two sons, who are active in politics. Since he was perhaps unable to move against Mr Maran’s elder brother, Kalanidhi Maran (who runs the Sun media group), the axe fell on the younger Mr Maran—a fact that does not speak well of the basis on which ministers are appointed or step down. The even larger embarrassment is that Mr Maran was chosen to lead the communications ministry even though his brother runs a broadcasting empire whose fortunes are affected by decisions that the ministry has to take. The manner in which the ministry dealt with Tata-Sky brought the conflict of interest out in the open.

What of Mr Maran as a minister? Certainly, he had little patience for the regulatory structure which had been put in place; so, he announced a new tariff plan (One India) though it was the telecom regulator’s (the Telecom Regulatory Authority of India, or Trai) job to do this, and a stony relationship with the Trai chief ensured that he did not act on its recommendations for more than a year, on occasion. Indeed, when Trai was moving at long last to reduce the access deficit charge, which helped the public sector Bharat Sanchar Nigam, Mr Maran initiated paperwork to issue a directive that would prevent Trai from doing this. As the minister in charge, he refused to accept Trai’s recommendations that asked the public sector telecom service providers to allow access to their customers; in another, he arbitrarily changed the definition of a service to hit private Internet providers in order to protect the same public sector firms. And he refused to take action when BSNL was found to be acting as a monopolist and delaying connectivity to competitors.

Against this negative record, Mr Maran’s positive contributions were commendable. It was during his tenure that the limit on foreign direct investment in telecom was raised to 74 per cent; and he fought hard to defeat the move by the security establishment to impose unrealistic controls on foreign investors. And while it is true Maran had little patience for Trai, the regulator did make some recommendations that were beyond the pale. In one case, it protected the incumbent long-distance service providers by putting up high entrance fees and onerous rollout obligations for new players—Mr Maran slashed the entrance fees and removed the obligations, which has resulted in more players coming into the sector. When Trai recommended that 3G spectrum be allotted to the existing mobile phone firms by right, Mr Maran realised that this meant no new player would ever be allowed to enter the sector, and sat on the recommendations till a new Trai chairman came up with more sensible recommendations.

On balance, it would be fair to say Mr Maran did a good job for the country. As for Tamil Nadu, his home state, the results are obvious if you see the number of software and hardware firms that have set up shop there in the last three years, or are in the process of doing so.

I don’t agree to the fact that raising the FDI limit to 74% has had any positive effect on the telecom density. And I have traditionally opposed exposure of such a vital industry to security risks. I wish, the editorial named anything really positive that Maran has done. It is not that I see everything in black and white but for obvious reasons, I don’t get to see anything to cheer about.

It’s been a year and I am still stuck up in the 256k band as I had been alloted earlier on. There is no improvement in the delivery of services per se. Still, I would prefer not to recount the gory details here and limit to the criticism of this editorial. Fact remains that Maran made it very clear to the “regulator” that he is the one who is the Boss and no one else. And he made a mess of himself.

Ideally, the telecom ministry should be run by a person who has the domain knowledge and remain uninfluenced by the competitive and marketing pressures. This is impossible to achieve in the given scenario. We’d rather suffer the insults than protest.

Tags: 3G, Access Deficit Charge, author, Broadband, BSNL, Business Standard, EDGE, India, Internet, Media, Mobile, Politics, Spectrum, Tata, Telecommunications India, TRAI