India: calls by the Minister for dramatic cuts in mobile tariffs have met resistance from operators

[Rediff] Industry may be euphoric over the United Progressive Alliance's triumphant return, but telecom service operators have found perplexing the first utterances of Communications Minister Andimuthu Raja.

Raja had on Saturday said at Chennai that he soon expects local mobile call prices to tumble to 10 paisa a minute (the current average tariff is 60 paisa) and national long distance call prices to 25 paisa a minute (from Re 1 now).

On Saturday, telecom companies said in one voice that prices cannot fall to such levels under the existing regulation.

The average cost of a minute-long call comes to around 50 paisa now, which includes termination charges of 20 paisa (money paid for a call to other networks). As a result, companies will loose 40 paisa if they have to turn Raja's dream into reality. A call to the same network will entail a loss of 20 paisa.

In the case of national long distance calls also, operators said they cannot offer tariffs which Raja claims are possible because apart from termination charges they also have to pay carriage fees which is around 65 paisa per minute.

"There is no way we can reduce tariffs to Raja's level as that would only mean losses," said a member of the Cellular Operators Association of India, a lobby group for GSM service operators.

Though there were fears in some quarters over Raja's statement, another COAI member said that the Telecom Regulatory Authority of India has given freedom to telecom service operators to fix mobile tariffs. "The Department to Telecommunications has no jurisdiction over the matter," he said.

However, there were apprehensions that Raja could ask state-owned telecom service companies like Mahanagar Telephone Nigam [Get Quote] (which operates in Mumbai and Delhi) and Bharat Sanchar Nigam (rest of India) to drop prices to these levels, which will put private operators under pressure.

One industry executive said this might not work and will punch a hole in the pockets of these state-owned firms: "Even at the moment the state-owned corporations offer tariffs which are 20 to 30 per cent cheaper but they have less numbers. Subscribers are not only bothered about tariffs, they want service and quality."

Agreed Mahesh Uppal, telecom analyst, ComFirst: "Raja does not have any say in tariff regulation. It is a populist measure. Tariffs in the sector have worked on market mechanism. That is why they are one of the lowest in the world. So it should be left for the market to decide."

"If tariffs fall further, the telecom service operators, especially the new ones, will be hesitant to get into rural areas since they are low revenue generators," Uppal added.

"Also, it could hurt India's broadband dreams as the cost of developing and delivering data services will become much higher than voice calls."

KPMG executive director Romal Shetty too said it could be tough to match Raja's numbers.

"Proper costing has to be done for such a proposal. The operators already pay the government in the form of licence fees, spectrum fees, service charges, duties and equipment and handsets. So, unless all these costs come down, it will nearly be impossible to achieve the 10-paisa and 25-paisa tariff."

However, he said that such tariff levels will become possible once the country has achieved penetration levels of nearly 70 per cent and the operators have very large volumes. Penetration at present is just 37 per cent.

Telecom: Raja starts on a discordant note