Author's Picture Issue: India 2008
Article no.: 1
Topic: Tariff trends in Indian Telecom
Author: Nripendra Misra
Title: Chairman
Organisation: Telecom Regulatory Authority of India
PDF size: 448KB

About author

Mr Nripendra Misra is the Chairman of the Telecom Regulatory Authority of India; he has been with the Indian Administrative Service for almost four decades. His previous posts were as the Secretary of the Department of Telecom and Chairman of the Telecom Commission. Mr Misra was Principal Secretary (Finance) in the UP (Uttar Pradesh) Government. He had also served as Principal Secretary to Chief Minister (UP) Secretary Taxation and Head of Cooperative Credit Institutions. In the Government of India, Mr Misra served in Department of Economic Affairs looking after World Bank and International Monetary Fund (I.M.F.) and other multi-lateral matters, in Ministry of Commerce looking after World Trade Organisation (WTO) matters and also as Secretary of the Ministry of Fertilizers. He has been a consultant to the World Bank and Asian Development Bank. He was also Member Secretary of the UP Taxation Committee and has served as a member on Reserve Bank of India (RBI)/Agriculture Refinance Development Corporation/Rural & Urban Cooperative Committees. Mr Nripendra Misra earned his postgraduate degrees in Chemistry and Political Science and Public Administration from Allahabad University. He also studied at Harvard University, USA for a Masters degree in Public Administration.

Article abstract

The Telecom Regulatory Authority of India has reshaped India’s telecommunications sector and can take a significant amount of credit for the country’s economic growth as well. Its policy of liberalising regulations, promoting competition and forcing tariff reductions has made possible the extraordinary growth of mobile usage and promoted the growth of services such as business process outsourcing and knowledge processing, which have transformed the country’s economy. India’s transparent and consistent regulatory approach has also attracted much needed investment to the sector.

Full Article

In the recent past, the Telecommunication Sector in India has witnessed the highest growth rates in the world, particularly by the unprecedented growth in mobile telephony. This high growth rate was achieved in major part due to a sharp fall in tariffs. This has not only rapidly expanded the subscriber base, it has attracted important global manufacturers of telecom equipment to consider investing in India, paved the way for extensive provision of modern communication services in rural areas, and has provided a strong boost to government revenues from the growth in sales of services and equipment. The availability of affordable and effective communications is at the core of the vision and goal of the New Telecom Policy (NTP, 1999). The telecommunication sector in India has achieved a lot in the a years and expects to achieve more in the coming years. The tariff level for voice telephony in India is among the lowest in the world, which has enabled us to achieve tele-density targets exceeding expectations. Whether it is in the matter of providing affordable telephony services, adoption of world class technologies, scope of service provided or penetration level, the story of the telecom sector in India is that of success – success made possible by policy initiatives of the government and the sector regulator. It is interesting to examine how India achieved this growth in its Telecom Sector. When the state provided India’s telecommunications services growth was abysmally low and did not meet the requirements of a developing economy with a huge population. Huge investment was required to extend and upgrade telecom networks and to introduce the new services. Liberalised markets throughout the world were innovating faster, so the need for liberalization of the Sector was felt. NTP 1994 initiated the policy framework for liberalization and this was further fine-tuned by NTP 1999. Enhancing efficiency and investment required introduction of competition, which in turn needed a regulatory mechanism to facilitate competition. The TRAI Act 1997 created the Telecom Regulatory Authority of India (TRAI) to regulate India’s telecommunication sector. The act created TRAI to protect the interests of the telecom sector’s service providers and consumers and promote and ensure the orderly growth of the sector. Telecommunication regulation is a complex process and relatively new to India. The need to view the sector simultaneously as an essential public service, and also as an industry involving huge investments at the same time, and to balance the process accordingly, added to the complexities. However, liberalization transformed the sector from a monopoly into a vibrant, competitive market bringing gains to all stakeholders. Key to this process was a consistent and transparent tariff policy formulated and followed by the TRAI over the years. The Telecom Tariff Order (TTO) of 1999 initiated the regulation of telecommunication service tariffs in India. This order provided the broad, long-term, policy framework for telecommunication services in the country. The tariff reforms initiated via this order provided a consistent and transparent regulatory framework for tariffs and sent clear signals to investors regarding the direction of tariff policy reform. The tariff policy acknowledged that competition is the alternative and preferable way of achieving cost-based tariffs. Under competition, not only are tariffs cost oriented, there is also a greater focus on introduction of new technologies and products. Mobile telephone, once a ‘luxury’, is now within reach of the common person following breakthroughs in technology and major changes in the telecom regulatory regime, which fostered intense competition in the market with consequent sharp tariff declines. Significant measures by the government and the regulator have greatly enhanced competition among operators and thus, enabled more affordable services to the consumers. Mobile phones hitherto affordable only by the elite are now commonly used by the working class – by masons, electricians, plumbers, vegetable vendors and other workers. The steps taken by the regulator included, among others: • Interconnect Usage Charge (IUC) Regime, to sustain competition in an increasingly converging environment; • Reduced Access Deficit Charge, bringing downward pressure on tariffs; • Calling Party Pays Regime, making mobile service cheaper, fixing low termination charges for mobile thus enhancing competition in the sector; and • Recommendations on a Unified Licensing Regime with Unified Access Service License as a first step, giving the operators flexibility to decide and implement tariffs keeping in mind certain regulatory principles. The growth of cellular mobile services in India can be largely attributed to the implementation of the symmetrical termination charge across networks and the Calling Party Pays regime in the year 2003. Since competition in cellular mobile services occurred concurrently, TRAI’s approach – to fix a low and uniform termination charge coupled with the freedom to fix outgoing call charges by the operators – was a success. The entry of a third cellular operator (public sector companies) and fourth cellular operator in a different service area strengthened competition in mobile telephony. WLL (Wireless Local Loop) introduced during 2001-02 also increased competition, which intensified when this service was regularized as mobile service in 2003. A number of licenses have been issued to further augment competition in each service area. The impact of the various regulatory measures is very much visible in the Indian telecommunication sector. The Access Deficit Charges regime established by TRAI in the year 2003 to compensate for the gap in the access revenue of the fixed line incumbent was gradually phased out and completely eliminated as of October 1 2008. TRAI suggested an alternative funding mechanism, through the USO (Universal Services Obligation Fund) framework, to the Government. TRAI, through appropriate regulatory policies and measures facilitating competition, has succeeded in achieving affordable tariffs. TRAI also put in place a transparent subsidy mechanism to implement policies and meet social objectives. This policy has succeeded in providing the financial sustainability of the regulated operators, promoting the efficiency in the sector and meeting the social objectives. The results are evident from the phenomenal growth in subscriber base and the decline in tariffs. The Indian telecommunications network is the fastest growing network in the world and currently the second largest in terms of size and usage. Consumers have also benefited from substantial decline in tariffs that resulted from regulatory measures of TRAI. Recent years have witnessed a sharp decline in telecom tariff in India particularly in mobile, national long distance and international long distance segments. The tariff decline started with the notification of Telecommunication Tariff Order in 1999 by the Regulator and continued thereafter. A few years ago a local call from a mobile cost around Rs.15/- per minute and calls received by mobile subscribers cost about the same. Today it costs only Re. 1 per minute for outgoing calls with absolutely no charge for incoming calls. A one minute call between Delhi and Mumbai that cost more than Rs.37/- in pre-TTO 1999 period currently costs almost the same price as a local call i.e. Re.1/-. Similarly, the tariff for a call to the American continent from India has come down from Rs.75 to less than Rs.7/- per minute within the same span of time. The reduction in National Long Distance (NLD) and International Long Distance (ILD) segments in each sub-category are given below in Chart 1 and Chart 2. There are many options available for the subscribers to choose from depending upon their usage profile. Most operators offer schemes that assure the subscriber of connectivity for life without any fixed recurring charge. TRAI’s tariff regulation even resulted in an option for customers to obtain a tariff for their service provider’s entire licensing period that cannot be hiked. The lifetime tariff plans offered by the cellular mobile service providers in the access service provision is one of the innovations of the operators which made the connectivity affordable to common man. A study1 of lifetime tariff plans reveals that such plans are not only popular among the consumers but are also profitable to the operators. It is evident from the graph that the usage has grown, prompted by fall in the tariff, which is also reflected in the falling ARPU. Falling ARPU does not necessarily mean that the service providers have not made profits. In fact, the financials of the cellular service providers have been improving year after year. The continuing drop in tariffs and substantial reductions in mobile handset prices have contributed greatly in enhancing the wireless subscriber base in the country. More than ten million wireless subscribers were added in a single month (March 2008) taking the total wireless subscriber base to 261 million. India now has become the second largest wireless network in the world. With the tele-density level still at 26 per cent and a major part of the population – particularly in rural areas – waiting to be connected, the country holds huge potential for further growth and investment in times to come. In sum, the economic benefits arising out of productivity gains from the spread of telecommunications services in India hardly need emphasis. Today, India has a vibrant telecommunications sector acting as a catalyst to a number of sectors like business process outsourcing, knowledge process outsourcing and various other Information Technology Enabled Services sectors. The size of the industry at the last reckoning i.e. March 2008 is placed at US$33 billion. The huge economic and social benefits to the country in a span of about ten years are clear proof that the light-handed approach towards regulating the industry was the correct approach. The approach of the Authority, to forbear from micro managing the market or resorting to intrusive economic regulation has allowed the industry to evolve in a manner that has maximized the benefits to the nation.