Telecom loop

By Those who welcome the in | 04 Jun 2003


New Delhi: Ever since the Telecom Regulatory Authority of India (TRAI) announced the implementation of interconnect user charges (IUC), loads of print have been splashed to demystify, nee simplify, it for consumers and operators.

Some consumer groups and public call office (PCO) associations have alleged that cellular companies would be the sole beneficiaries of the IUC regime. But, before all kinds of consumers — be it fixed line, WLL (wireless in local loop) or GSM (global system for mobile communications) cellular — get their 'new bill shock,' here is something about which GSM operators should ponder aloud.

In their bid to fight WLL-mobile operators they had welcomed the advent of IUC, as they wanted a level playing field vis-à-vis basic service operators (BSOs) offering limited mobility. The access charge of Rs 1.20 per three-minute call payable to the BSOs was seen as an unfair burden and IUC seemed a sly migration tool towards a calling party pays (CPP) regime.

Post-1 May 2003, all GSM operators have implemented free incoming calls for all their subscribers, be it pre-paid or post-paid. What revenue implications would this have on their hitherto bleeding balance sheets?

Even for operators like Bharti Cellular and Hutchison, who were sighting break even by next year or so, IUC may push it back by a couple of years at least. All the bravado and loud mouthing from the Cellular Operators' Association of India (COAI) that due to earlier policy imbalances they were not able to provide free incoming calls to their subscribers, may soon be silenced for good.

While crowing about their noble intentions they forgot that despite paying the access charge for outgoing calls to landlines, all GSM operators were charging a healthy amount from their customers for incoming calls. A sample research done on some post-paid GSM bills reveals a scary scenario for cellular operators. Here's an average statistic of the computation done. We have taken an average billing pattern for this study.

As per TRAI's reference tariff package (RTP) rates of Rs 2.40 per minute for outgoing calls and Re 1 per minute for incoming calls, let's see the calculations of the erstwhile bill. A typical post-paid user talked for about 300 minutes on his mobile phone for both outgoing and incoming calls before the onset of IUC.

His usage pattern was usually 60 per cent incoming and 40 per cent outgoing calls, that adds to 180 minutes of incoming and 120 minutes of outgoing talktime. Out of the total talk minutes of 300 minutes, cell-to-cell (C2C) outgoing calls are around 50 per cent of the total outgoing — which means, around 60 minutes and the balance 60 minutes to landlines or fixed phones.

The total outgoing break-up of the billed amount is Rs 144/C2C outgoing @ Rs 2.40/min. For fixedline calls, the amount comes to Rs 168 (Rs 144 for airtime plus Rs 24 access charge; for total cell to fixed line talktime of 60 minutes, there would be 20 three minute calls @ 1.20/min). The incoming calls were uniformly billed @ Re 1 per minute, hence for Rs 180 accrued for 180 minutes of usage. The incoming revenue share in the total talk revenue of Rs 492 thus comes to 37 per cent. This revenue stream is going to dry up for the cellular operators.

It has been put forward by COAI that incoming calls have risen by 10 per cent post-IUC. So the fresh revenue stream from the interconnect charges for the operator would be just the IUC charges paid by other networks. Assuming that an average IUC of Rs 0.40 per minute is paid to the operator by other networks, the total incoming revenue becomes Rs 79.2 (enhanced incoming minutes of 198 minutes multiplied by 40 paise per minute).

So the cellular company takes a hit of Rs 100.8 on account of incoming calls alone. Outgoing calls have always been need-based (cheaper rates notwithstanding), so there is no significant rise in such calls, hence the revenue implications remain more or less the same as earlier.

So the total billing revenue from the customer dips from Rs 492 to Rs 391.2 — crumbles by 20 per cent. Add to this the lower rentals and the infrastructure additions for servicing the same customer base, high cost of new customer acquisition and high churn rates, and the bottomline can deplete by over 30 per cent.

Such fears abound as can be judged by edgy reactions of industry honchos. BPL Mobile chief operating officer Krishna Angara says: "All things remaining the same, the phone bills should see a 20-per cent drop after the recent rate cuts."

Some try to maintain a brave front, like Bharti president (mobility) Manoj Kohli: "Despite the drops in incoming airtime to zero, our average revenues per user are quite stable." Well, the coming months would plumb the real depths of the billing tale.

The pre-paid story is trickier. At a mean outflow of Rs 300-400, a typical pre-paid customer would savour unlimited free incoming calls, and outgoing per se is not much in his scheme of things. To service customers of his ilk (and there are more than 60 per cent such folks in most operators' kitty), the service provider has to do more capital expenditure for zero-revenue increment to their bottomline.

If one argues that an unprecedented surge in new the pre-paid subscribers would offset the loss of free incoming calls, then let's be reminded that the pre-paid category has been non-remunerative worldwide and would always remain a precursor or initiating mechanism for the post-paid segment.

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