TRAI in no hurry to set floor pricing

The Telecom Regulatory Authority of India (TRAI) has in all probability decided to stay away from putting in place floor prices for data and voice tariffs, at least till the lockdown is lifted.

The reluctance may be that TRAI sees fixing floor price for tariffs as anti-consumer, as it will lead to rise in call and data rates. The operators had increased tariffs during December by up to 50 percent, which has seen a jump in their average realisation per user during the January-March quarter. TRAI and government may be feeling that further hikes can be done by the operators at an opportune time without the need for any regulatory support framework.

COAI has been urging the  regulator for quite some time to move forward quickly on the issue of fixing floor price for tariffs, saying the matter is imperative to ensure that the sector is sustainable and in a position to bear the deferred spectrum and AGR dues. The telcos had also proposed a minimum subscription charge for consumers to be on the network.

In several webinars conducted in the last two months, RS Sharma, Chairman, TRAI has consistently maintained that it would not be possible to hasten this process. TRAI works in a certain system, an open house has to be held, and consultations done before a regulation issued.

TRAI had issued a consultation paper on the subject and Bharti Airtel, Reliance Jio, and Vodafone Idea had submitted their proposal, outlining floor prices for data and voice services. As required under the TRAI norms, the regulator was then expected to conduct open house sessions at four major centres in the country and then issue the order setting the floor. Since tariff is TRAI’s domain, it does not need to send any recommendation to the government for approval.

Comments by operators in response to TRAI’s consultation paper.

In all 51 comments were received. They were all in agreement that setting a floor price is imperative for the operators to be able to survive at least for the next couple of years. These included COAI, Reliance Jio, Bharti Airtel, Vodafone Idea, BSNL and MTNL and Tata Communication, Nokia and Ericsson. Telecom operators have also submitted estimates of the stress in the sector and the tariffs that could help ease the pressure.

COAI.  The floor price must be fixed only for an interim period of two years and after two years, the regulator can review the tariff regime. Even if voice tariffs remain the same, there should be a floor price for data tariffs. The floor price must have a subscription or connectivity charge irrespective of use even for voice. It should factor the minimum subscription charge to be on the network, the value of unlimited voice and a floor price for data. The tricky part is having a floor price for bundled offers that include data and voice services. For this COAI said operators must be made to ascribe a value to all services, in a bundled plan for arriving at the floor price for data services. So effectively the floor price will be the total of minimum subscription charge + floor price on data and a charge for bundled offers.

COAI also recommended that telecom service providers should not be allowed to issue bundled plans with unlimited free off-net calls along with data. Beyond the bundled off-net minutes (voice minutes), the rate charged per minute cannot be lower than the Interconnect Usage (IUC) rate that is set by the government.

Reliance Jio. Jio did not recommend an exact amount for floor price, it maintained  that fixing a floor price for data should be done based on the actual realization of revenue from data services. It said the current revenue realized from data services is Rs 9-12 per GB. This should increase to Rs 20 per GB in 2-3 steps over the 6-9 months. It also emphasized that the floor price should be applicable to all bundled tariff plans to ensure the sanctity of the data floor.

Bharti Airtel. Airtel maintained that the floor price should be fixed by TRAI on cost-based methodology to ensure that operators are able to make a 15 percent Return On Capital Employed (RoCE). It has suggested three models for fixing prices — fixed price model, telescopic price model and current price mode. The fixed price will give the best return on capital employed at 15 percent whereas the telescopic and current price mode will give 10 percent and 8 percent return respectively.

As per the first plan, Airtel has proposed a Rs 30/ GB floor price on data and a Rs 75 charge for minimum subscription. Each GB increase will be charged Rs 30. It also recommended a Rs 60-charge for unlimited voice in bundled plans. So this sets the floor price suggested by Bharti Airtel for 1 GB voice and data bundled plan at Rs 165 for 28 days.

Vodafone Idea. VIL said that the floor tariffs must cover the actual costs and provide a reasonable rate of return on capital. It recommends a Rs 35/ GB floor charge for data tariffs and a minimum subscription charge of Rs 75 but has not specified a charge for bundled tariffs. So for now, the effective floor tariff suggested by them for 1GB data bundled offers is Rs 110. In addition, it says that the actual trend of traffic and ROCE can be revisited after observing the impact of floor price for one year.

BSNL and MTNL. The PSUs believed that a floor price should be set for data, voice and SMS’s and it should be calculated based on the average industry cost which should be marked up by 25 percent.

While CCI opposed a floor price,  Niti Aayog initially recommended that a floor price is not needed and the justification for the setting of a minimum charge for tariffs in itself is questionable. It said that floor price will reallocate consumer surplus to the incumbent players.

Later Niti Aayog reversed its initial stance and in its final recommendations supported the idea of a floor price. “…in the extraordinary circumstances that the sector is going through at present, we believe that floor prices are absolutely necessary to avert lasting damage to India’s digital agenda and economic growth. TRAI has rightly pointed out that sectors revenues have not kept pace duty the increasing need for investment especially in the context of the new technologies like 5G. It is in the national interest to ensure that the sector is provided with much needed relief measures which would ultimately benefit consumers and the economy,” said Amitabh Kant, CEO, NITI Aayog.

—CT Bureau