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).

One in every third prepaid subscriber is fake. If this isn’t “chilling”, it ought not to be to you dear readers because I have been asserting here that the valuations of these companies have been artificially bloated.

Of course, it wouldn’t be affecting the execs in their plush offices because it is the deceit that keeps them comfortably on their asses. During a routine criminal investigation in Haryana, the police discovered huge number of connections in a single person’s name. After further probes, they discovered that a number of telephone connections had been booked in the name of fictitious entities. In simple lay man’s terms it means that anyone could potentially “misuse” the phone numbers without the fear of being traced.

The Haryana police booked a couple of Airtel employees and it took considerable resources (my guess) to avoid a PR disaster for them. The whole matter seems to be subdued and suppressed and talked off only in hushed up tones. It is not getting the attention it deserves. By rough estimates, if the proper physical verification takes place now, it would shave off one third of the numbers which the companies gloat about. No wonder, Ramachandran, COAI chief, is keen only for the random verification of the subscribers. They cite huge logistics problems for the same.

This has grave implications for the internal security of this nation. In the name of driving up subscritions and ramping up subscribers, the norms have been thrown out. It didn’t apply to them in the first case either.

Getting a pre paid is simple. One has to furnish a “proof” of residence/ photgraph. That’s it. No questions asked. The “verification” is done at the level of the shopkeepers who is supposed to know the local residents. A little “consideration” and things get rolling for a new connection. Prepaids cannot be traced to the original subscribers and the SIM card can be destroyed and a new one had.

Post paid norms are tougher and no wonder, I get to hear delays on the part of the companies to verify everything at their end.

This wouldn’t be solved overnight and is a clear cut violation of licensing norms. Why haven’t their licences been cancelled?

I have always suspected that numbers are inflated. A surprise entry in Hindu Business Line just confirms my suspicions.

It says:

The phenomenal growth in mobile subscriber base being reported by the operators every month may not be entirely true.According to a new study done by the US-based research and analyst firm Yankee Group, the addition of new cellular subscribers in the country may be exaggerated by about 10-15 per cent.

Reacting to the report Mr T V Ramachandran, Director-General, Cellular Operator’s Association of India (COAI), said that reports from China has also pointed out lower handset sales as compared to new subscribers added.

(Which reports Mr Rama? Readers, you are at your liberty to laugh at this chap. He’s lampooning himself and suffering a fit of verbal diarrhoea. Oh China indeed! Just because it “supposedly happens in China, it has to do in India too?)

This could be because there are subscribers who have two connections but only one handset due to high price of the devices (:-)) By the way, getting a connection is not easy either. Further, the so called “cheap prices for the connections are valid for 15 days. Even if someone goes in for a “free incoming” offer, thats roughly equivalent to Rs. 1000/- Some one can easily pick up a second hand handset. Who would want to change SIM cards? Two handsets? Bah! Tomorrow, you could claim 3 or more!

We could do with less of these people around here. Mr Rama has a good lawyer and I don’t to trouble him with drafting anything out in my name. Though, enough said about the posts they hold. I can understand the need to protect your interests, but in such a blatant manner? Inexcusable.