Customers mustn’t pay for excesses of service providers
Jan 24 2013, 2057
The surreptitious hike in call rates by the country’s top three GSM based mobile service providers by revenue market share, reeks of cartel like anti competitive behaviour that should be investigated by the Competition Commission of India (CCI). The almost simultaneous upping of effective call charges for prepaid customers is in keeping with the non transparent nature in which the industry operates, often selling several essential features separately as if they were add on, value added services. The hikes follow almost a 25 per cent increase in 2G data rates by the carriers earlier in the month. The firms justify the move saying that cut throat competition and rising costs have crimped profits and dented margins impairing their ability to offer shareholders attractive enough returns for them to source additional capital required for growth. Indeed there may be truth to this refrain, but a closer analysis would reveal that rather than a generalised increase in costs that is crimping margins, it’s bad business decisions of overpaying for 3G licenses or ill-advised overseas acquisitions that have curtailed profits, increased debt loads and made profits hard to come by. For many telcos, revenues from 3G services are just about enough to meet the interest costs on debt raised for investment in 3G licences and associated infrastructure. Having repeated the mistakes mobile providers in the US and Europe made in overpaying for 3G licenses, Indian service providers now want to burden the masses of 2G customers by making them pay for excesses that their clients had nothing to do with. This is similar to the case of many city transport undertakings that run special air-conditioned buses at a loss and then aim to recover the same from fare hikes in ordinary buses. This kind of reverse populism where one subsidises those that don’t need any support by burdening those in need, runs large in India. Consider our regressive tax structure where few people pay income tax and the masses that are less well off, pay value added taxes to make good, inadequate collections of direct taxes. Mobile firms have done yeoman service by providing affordable services to India’s masses. By providing the cheapest call tariffs in the world and leveraging scale and high price elasticity of demand, telcos made India one of the world’s fastest growing telecom markets. But bad business decisions have now taken off the sheen from this once sunrise sector. The removal of competition by the revocation of licenses by the Supreme Court as a fallout of the 2G scam, has significantly impacted rural penetration, subscriber growth and the easy availability of competitive tariffs. Authorities need to keep a hawk eye on firms to ensure they do not abuse their market position. The Telecom Regulatory Authority of India or the CCI should step in and ensure that cross subsidising or rather loot of the general public must stop. That is not to say the industry is to be whipped. There are several genuine demands made by the industry lobby groups COAI and AUSPI to the government, such as including telecom in the definition of infrastructure projects and permitting mortgage of spectrum to raise bank loans that are worth considering in the upcoming Union budget. As and when the second round of 2G auctions happen, there may be a case of bumping up call charges to better account for the cost of spectrum. But the estimates put out the central government, TRAI and the increases announced by private firms seem to be rather far apart.