With the landscape of Telecom changing rapidly in the last year and a half, it is important to have a look at the latest amendments and the possible implications
1. New Entrants can create cut-price plans as compared to incumbents.
2. Existing telcos cannot cut prices to match new entrants according to new laws. This means the customers of the existing telcos cannot enjoy lower tariff rates.
3. Due to other telcos being in business longer, the new entrants would have to pay existing telcos IUC charges, but no more. The new laws slash IUC charges by over 50% leaving existing telcos empty-handed.
4. The new entrants will look to benefit further from these laws as their spends reduce, and they further cut prices. These prices will create an unstable environment in the tariff pricing space in the next one year.
5. Trai, in essence, is forcing existing telcos to switch to next-gen networks, by cancelling IUC by 2020.
The new entrants will look to benefit further from these laws as their spends reduce, and they further cut prices. These prices will create an unstable environment in the tariff pricing space in the next one year. Incumbents would be required to invest more capital for network expansion and upgrade while absorbing the loss of IUC revenue. Customers should expect call quality to worsen before they invest more capital and take on more debt.
Trai’s latest triple ton
The Telecom Regulatory Authority of India (Trai) has come up with three new changes to the telecom traffic and interconnection regulations that have again triggered discussions in the Telecom fraternity. What these 3 amendments mean and what implications (both long term and short term) they bring in are explained below:
Ruling 1: Redefinition of criteria in the Significant Market Power (SMP) and Predatory Pricing
The previous criteria of SMP included network volumes and capacity as the measuring parameters, which have been changed to gross revenues and subscriber market share in the current market scenario. The incumbent telcos will not be allowed to reduce prices to match up to a new entrant, to stop current customers from deflecting. The new entrant or smaller telcos are allowed to introduce new attractive price offers every other month.
The ruling supports telcos having less than 30% share of revenues or subscribers in a given market, and in most circles in India, either Airtel or Vodafone-Idea have 30% share of the same. The basic idea of the new rule is bleed customers or help them deflect until the new entrant or smaller player has its equivalent share of either subscribers or revenues.
Ruling 2: Reduction of Interconnect Usage Charges (IUC) from 14 paise per minute to 6 paise per minute
IUC is the fee paid by one telecom operator to another to complete a call from its network to the other network. The incumbent telcos have been in the market for a longer duration and have an established strength and customer base. For the new entrant to use their strength would now be billed at a much cheaper rate with IUC being reduced by over 50%. This helps the new entrant but reduces the effectivity of established telcos by slashing their earnings every time the newcomer uses their network.
Ruling 3: IUC elimination from January 2020
According to Trai, the future next gen networks will be data-driven and based on IP. Voice calls are expected to travel as data packets, and there will be no fees required to complete calls or carry data packets from one telco to the other. Established telcos are required to invest in network upgrade to provide next-generation networks for customers, despite the loss of IUC revenue. However, the new entrants are already on the next generation network, which saves them money on both the upgrade as well as the IUC bills.
Impact of the Ruling:
Incumbent customers will be locked with higher prices on their services availed, whereas customers of the new entrant or smaller telcos will enjoy variable benefits below the average costs. With the lower tariffs for the newcomer comes the hit in quality of calls for incumbent customers in the rural areas. Implementation of these ruling would take away the flexibility of incumbent telcos to protect their customers and offer them better benefits. These rulings also mean that the call quality will worsen before the telcos invest in their next gen networks.
However, the implementation of next-gen networks in the future will see uniform tariffs and data-centred pricing. It will also ensure that customers will get superior and qualitative experience.