Telecom Regulatory Authority of India (TRAI) took very ground breaking decisions in the beginning of 2007. On January 24, 2007 it announced its orders to reduce tariffs for roaming services by up to 56% and totally abolish the rent regime.

Effective from February 15, 2007, service providers had to slash their roaming charges by up to 56%. This step is expected to boost competition in the roaming segment, bringing it to the same level as other mobile services. Various regulatory had benefited the market and policy matters, and also witnessed tremendous growth in the subscriber base. The case is not the same for the roaming segment where competition is still low. On the other hand, service providers found it objectionable as it affects revenues and a few segments demanded that the ceiling tariffs on the roaming airtime charges could be reduced to bring in greater affordability for users.

The claims of service providers in terms of reduction of revenues are uncalled for. No additional cost is being incurred by operators to make the roaming facility available to all mobile phone consumers, and present tariffs for telecom services across all telecom services have exorbitant margins that can be reduced to realistic levels.

Despite the reduction of tariffs, TRAI has still left generous margins for service providers. According to Dr Bipin Batra, president, Cellular Phone Users Association of India, "As per IUC, Rs 65 is the carriage costs and Rs 30, termination costs. In addition, Rs 30-40 is premium for the originating SP. Adding all other aspects, the total cost comes to Rs 1.25 and over that outgoing costs have been priced at Rs 2.40, which is a generous margin for service providers."

The long distance carriage cost for mobile operators at Rs 65 is in itself more, as at 30-40% network utilization, the cost of running an NLD network as per TRAI calculation comes down to Rs 18 per minute, around one-third of the rate charged.

The margins are very high and there is more scope of reducing tariffs, as a healthy profit margin for any business is around 22-25%. Also, costs of setting up a network comes to Rs 1,500 per line and with ARPU ranging from Rs 300-400 costs are recovered in no time. The termination charges were decided by TRAI in 2003 when the subscriber base was small and minutes of usage were low. Now it has grown exponentially. And, Also, operators mostly outsource their process, lowering their costs further. So, termination costs need to come down from Rs 30.

This slash in roaming rates will have a very small impact on the profitability of service providers in the medium and long term. Currently, around 10% of mobile subscribers use-roaming services. With the slashing of charges, this number is expected to increase to 20-30% in the next three to four years.

Submission of operators regarding low ARPUs, low EBIDTA and "poor cash flows" is also unreal as they are still making decent profits despite having below industry average ARPU. This is because of the exponential growth in the number of subscribers that these projects are seeing healthy cash flows.

The minutes of usage will also rise and the same trend as experienced when NLD rates were slashed will follow. Abiding by TRAI's orders, Bharti has slashed its roaming rates by 56%, Reliance communication by 44%, and Hutch by up to 56%. These service providers without any monthly rental now provide national roaming.

Evolving technologies and constant innovation has brought down costs; its time service providers passed it on to the customers. TRAI as a regulator is taking initiatives but the question is, is it enough?

Sonia Sharma
sonias@cybermedia.co.in