Almost six years after Telecom Tariff Order (TTO), 1999 was issued, Telecom Regulatory Authority of India (TRAI) has finally reviewed the tariffs of international private leased circuits (IPLC) in different capacity categories. The ceiling of tariffs has been welcomed by the industry. However, the order appears to have come a bit late and falls short of expectations.

The TRAI announcement effectively means 35 to 71 percent reduction in the prices in different categories. The new ceiling tariff for IPLC half-circuit of E1, DS3 and STM-1 capacities are Rs 13 lakh, Rs 104 lakh and Rs 299 lakh a year respectively. This order does not include satellite IPLC and this has been forborne.

The reduction in the tariffs is expected to directly affect the international long distance call rates and benefit bulk bandwidth users like the ISPs and IT enabled services like the BPOs and call centers from April 1, 2005 when these tariffs would be implemented.

Despite welcoming TRAI's step, the industry does not seem to be very happy. Tata-owned Videsh Sanchar Nigam Limited (VSNL) has already moved TDSAT, against the order. Other operators either refused to comment or are waiting for the TRAI decision on the domestic leased lines before reacting. In fact, VSNL has raised the contention that IPLC bandwidth prices should not be seen in isolation and unbundling of local loop for the overall tariffs to actually go down.

Failure of competition
India has four international bandwidth providers-VSNL, Bharti Infotel, Reliance Infocomm and Data Access. While small nation like Korea, Mauritius have more than 10 bandwidth providers. Of the Indian ILD operators, only VSNL, Bharti and Reliance have submarine cables to deliver IPLC connectivity. Among these, Reliance is still working on the landing facilities in India through the Falcon project and Data Access gave satellite bandwidth. However, even after VSNL's monopoly ended, the competition has not helped the market grow and revenues have been falling at over 13 percent per annum. VSNL still continues to enjoy the largest market share of over 85 percent (V&D 100 estimates) when it comes to international connectivity.

Despite the TTO 99 letting the market forces to decide on the tariffs, the Indian operators have kept the rates higher than many other nations. The problem has not been with the availability of bandwidth. Contrary to the belief that competition would bring the prices down; it has kept it up, thus inviting the regulator to fix the upper limit.

Effect on Internet/broadband tariffs
Apart from the three operators who own the cable, BSNL and MTNL sell bandwidth to Internet Service Providers (ISPs) and today all the telecom operators offer Internet services to the end consumers too. Ideally the reduction in the IPLC rates should bring down the Internet cost too as more bandwidth would be available at lesser cost. However, ISPs and telecom operators say the Internet tariffs are already very low and it would be difficult to reduce them further. MTNL CMD RSP Sinha said the broadband prices being offered have taken into account the reductions and hence would not go down further in the near future.

TRAI has been silent on the demand for mandating the telecom operators to offer retail minus pricing to ISPs. This would enable an ISP to buy bandwidth at slightly lower price than that being offered to the retail customer.

With IPLC rates going down, more bandwidth would be purchased and made available by BSNL-MTNL and others, but they might reduce the price equally for the ISPs as well as their enterprise customers. So, for customers buying directly from the telecom ISP it might get cheaper while others may benefit less.

Effect on international long distance calls
More than the IPLC rates, international long distance call rates depend on the ADC being levied on the operators. The ADC often forms up to 70 percent of the call charges. So even if the remaining 30 percent is removed, which is unlikely as operators have to generate money too, the ISD call rates would witness small reduction. Further, call termination depends on the domestic lines as well as the last mile loop also and unless they are brought down, significant reduction would not be seen.

Today the international rates are not bound to the distance of the call being made. In fact, calls to US are cheaper than those being made to the Gulf nations. TRAI should look at removing this anomaly.

Effect on IT and ITeS
IT and BPO industry are said to be the biggest beneficiaries of the current order, as they need huge bandwidths to remain connected 24x7x365 with their clients. They are the bulk buyers and are contributing almost 80 percent to the international connectivity pie. Though IPLC still occupies their mind, IP-VPN and MPLS-based services are also vying for a piece of the kitty. This has also prompted VSNL to move against cost reduction and argue that IPLC forms a very small percentage of the total cost structure of the IT and the ITeS industry and hence would have a marginal effect.

Whatever VSNL or any other bandwidth operator says, the fact remains that even after the ceiling, the prices are still on the higher side. Though TRAI acknowledges the benefits of Forward Looking Long Run Incremental Cost (FLLRIC) method, it sticks to historical average cost method. The regulator says "relying mainly or fully on FLLRIC would give a much greater shock to the market, and is also likely to make transition to competition much more difficult" but it does not disclose the difference between the pricing of both the models. A calculation shows there is scope for reduction in prices by another 50 percent at least in the IPLC segment.

Along with the pricing, the regulator has to look into the quality of service and compliance to service level agreements too. Today, a customer might be ready to pay slightly more if he is offered better services and uptime. TRAI should also come out with mandatory parameters on QoS.

Thus, though the TRAI's move is in the right direction, lot needs to be done and many other aspects need to be examined before the desired effect of the order can be felt.

Anurag Prasad

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