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The New Calling

Lower long-distance rates via cellphone leaves BSNL in some serious difficulty

The New Calling
The New Calling
It's nothing short of war. Last week, India's leading cellular service providers opened the hostilities against prices of long-distance calls. Come Republic Day, long-distance calls between mobile phones will cost half what you pay now. And they'll be cheaper than fixed-line calls. Believe it or not.

On December 17, Bharti Telesonic launched IndiaOne, India's first private national long-distance (NLD) project (STD for you) with a promise of reducing tariffs by about 50 per cent. Within a day, cellular operators lapped up the offer and decided to pass the benefits on to consumers. Eight operators—Bharti's own Airtel, Hutchison, Essar, Escotel, AT&T, Koshika, Spice Telecom and BPL Mobile—covering over 80 per cent of India's five million cell users, have jumped in. Reliance, which has its own plans in STD and basic, RPG, Hexacom, Aircell and MTNL's Dolphin have stayed out. Some may change their decision soon.

With this, the monopoly of state-owned Bharat Sanchar Nigam Ltd (BSNL) over the Rs 9,000-crore STD market is officially over. While Bharti is the first privateer to hit the STD turf, the other licence-holder, Reliance Infocom, plans to begin services by March-April 2002. The Tatas are weighing options.

The package splits India into three distance zones: Home location (50-200 km), Regional (North, South, East, West) and National (Inter-region). As against BSNL's four time bands, the new regime offers two: peak hours from 9 am to 9 pm with rates of Rs 12 per minute for a national call, against the Rs 24 we pay now, and Rs 6 per minute for a call within the region. Off-peak, the rates will be a further 50 per cent lower. For home location, calls will be billed at Rs 2.40 per minute at all times.

Says T.V. Ramachandran, director general, Cellular Operators' Association of India: "This is liberalisation. We are giving it close to cost by cutting margins. BSNL has always preferred high profit margins by keeping prices unrealistically high." Adds BPL Cellular Holdings chairman Rajeev Chandrashekhar, "Affordability has always been within the Indian consumer's reach but policies or lack of implementation of crucial aspects of policy, like a comprehensive interconnect regime, has held this back."

The deal is all sugar and honey for the operators too. Bharti has not only waived port charges (BSNL extracts between Rs 9,000 and Rs 15,000 per channel from access providers), it has also proposed a three-way revenue split between the call originator, carrier and terminator. Yet to be finalised, the ratio being talked about is 30:40:30. Currently, BSNL offers a two-way split where the originator gets only 5 per cent while it pockets the rest.

In the first phase beginning January 26, 2002, the service will be available in the four metros and Karnataka, Andhra Pradesh, Madhya Pradesh, Uttar Pradesh (West), Haryana, Gujarat, Punjab and Maharashtra. The second phase beginning April will include Uttar Pradesh (East), Rajasthan, Tamil Nadu and Kerala. The final phase will connect the rest of the country as well as mobile to fixed lines, depending upon agreements with BSNL and other operators.

These developments have put BSNL on the backfoot. It has reacted by announcing that it would cut STD rates in April. But as BSNL has always maintained that high STD rates subsidise local calls, this may force it to raise local rates, something neither the company nor the government wants.

Interestingly, the Telecom Regulatory Authority of India (TRAI) had proposed a phased reduction in long-distance tariff and an increase in local charges three years ago to move to a cost-based system. The move died out because of a furore in Parliament against raising local rates. However, in the last two years, the TRAI has had several volte-faces. Says a cellular operator: "BSNL had time to preempt this. This is fundamental lack of foresight. And the TRAI had this misguided sense of protecting the incumbent by keeping prices high and competition at bay."

BSNL's going may get tougher once Reliance and others jump into the fray in April 2002. Says Chandrashekhar: "Consumers will experience more affordable services. Clearly, some re-balancing of tariffs will be required from BSNL."

As expected, BSNL and MTNL are now trying to throw a spanner in the cell operators' works. They are of the opinion that the operators cannot implement the discounted rates before the government announces the carrier access codes which enables a subscriber to choose the STD provider. The private operators disagree and say that they are working within rules.

But if BSNL's stand is found to be correct, the government may take its own sweet time to announce access codes to dampen private sector spirits. And of course, the entire package has to be cleared by the TRAI—so don't start celebrating already.
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