Four years ago, mobile operators accepted increased competition after the government agreed to share their business risk. A forward-looking National Telecom Policy 1999 allocated licenses by services and not by technology. But the WLL (M) service now available to basic telecom operators can hardly be distinguished from mobile services.

This has been the cause of rising rift between the GSM and CDMA operators. The fight reached alarming proportions soon after the soft launch Reliance’s India Mobile services. In a free-for-all, operators resorted to denial of interconnect to each other, only to compound the woes of the bewildered customer.

Role of the Regulator
According to the International Telecommunication Union’s colloquium on regulators, interconnect issues arise soon after the initial phase of deregulation, when newer players have to route traffic through established once monopolistic incumbents. Since late entrants are usually competitors with newer technologies and better customer service attitudes they are naturally perceived as threats. Incumbents therefore seldom cooperate with them. Since the primary reason for deregulation is to foster competition, the regulator has to step in ensuring a level playing field.

Consulting firm Gartner Research has a model that describes the transformation that occurs in deregulated telecom economies. Soon after deregulation—as it happened in our country during 1994-95—a plethora of players rushes in, representing an expansionistic phase. As operators’ business models develop, competition, shakeout, and consolidation are witnessed. Tariffs fall and volumes surge. Finally, there is restructuring amongst a few players, when economies of scale allow prices to fall further and traffic to soar almost exponentially. According to Geoff Johnson, research director, "The number of years after deregulation taken to reach the restructuring phase depends on the effectiveness of the regulator". The stronger it is, shorter is the time for a country to reach telecom maturity, usually exhibited among other things by pure revenue sharing interconnect agreements based on cost plus operations. If the regulator is weak, this duration gets protracted and painful as incumbents resist change and try to maintain status quo. "Interconnection is tougher and longer than expected. But all countries have to go through this", he points out. The intermediate years are tough since there are large amounts of revenue, huge traffic changes as well as personalities involved. A weak regulator unable to help build interconnect agreements, creates business frustration amongst the newer players who witness poor or no returns on investment.

What Causes Conflict?
The face-off in the first half of January this year, between mobile operators, the telecom regulator, private basic telecom operators and incumbents stems from exactly these feelings of business frustration. The root cause again—one-sided interconnect terms built into revenue sharing agreements between basic and mobile operators. Right since 1995, when mobile and basic licenses were first issued, an access charge has existed for a mobile subscriber call terminating in a basic operator’s and now also a WLL (M) network.

The origin of this access charge lies in the tariff structure of incumbents BSNL and MTNL, which has been calculated on the basis of cross subsidy. Revenues from long-distance calls pay for local calls. Revenues from higher usage owners subsidize the costs of lower usage owners. Working on a below-cost model for intra-circle traffic, MTNL and BSNL had no option but to recover costs of interconnecting with mobile operators from the mobile operators themselves, since it could not differentially increase tariffs for its own subscribers. Mobile operators have, since 1995, therefore been stuck with both a ‘calling party pays’ and a ‘receiving party pays’ situation, a peculiar situation present only in this country.

Things would have continued like that, but for the introduction of WLL (M) services. Department of Telecom had to create the service as an additional sop so as to keep the business interests of private basic telecom players alive. S Ramakrishnan, managing director, Tata Teleservices, says, "Limited mobility is an additional business opportunity given to make the basic service license viable." According to him, if this ‘abnormal concession’ had not been made, only MTNL and BSNL would be around today.

While DoT created WLL (M), TRAI was supposed to implement a suitable interconnect and revenue sharing arrangement among all concerned operators. The ITU clearly specifies that the national regulator should help build these agreements, with minimal involvement. In essence, interconnect terms can also be brokered among the players themselves.

In the Corner
2001 onwards, after the first WLL (M) networks were rolled out by Tata Teleservices in Andhra Pradesh, interconnect agreements between private basic and mobile operators have been almost on an ad hoc basis. While private mobile operators were transferring the Rs 1.20 access charge to them less their collection fees, it is believed that private basic telecom operators were also sharing a nominal access fee with them, especially for calls originating from their WLL (M) networks. In the case of incumbents BSNL and MTNL, no such reciprocal sharing was taking place. But the whole arrangement has remained very fluid and sporadic with TRAI doing little to move towards cost based revenue sharing agreements. While TRAI did present its reference interconnect offer, mobile operators dismissed it as a "meaningless piece of document" and "a menu with no price list".

Moreover, in order to make handover of traffic between operators smooth, establishing optimal points of interconnection is necessary. This is also a key role that the regulator has to play, according to ITU guidelines. Again, while mobile operators have complained to TRAI about incumbents dragging their feet on this issue, the regulator has done little to get things underway. In a recently published article, former CMD of MTNL, S Rajagopalan writes, "TRAI does not appear to be independent and is not discharging its functions well. There is nobody the private operators can go to for remedy; they can be called silent sufferers."

In early January this year, as the story goes, TRAI started putting pressure on mobile operators to give faster access to Tata Teleservices’ WLL-M roll out in Delhi and elsewhere. "We were in the middle of a commercial dispute and somebody comes in and says you interconnect first and settle terms later," a mobile operator says.

TRAI’s insistence to provide interconnection first and draw up terms later was in sharp contrast with the practice adopted by the incumbents. Mobile operators point out that BSNL took almost 12 months to provide them interconnectivity across the country.

"It has never been an issue to interconnect with WLL, but all we want is a fair termination charge," a mobile operator points out.

TRAI’s recent announcement is a step in the right direction, but not necessarily the right step. Kobita Desai, Gartner’s senior telecom analyst in the country, says, "There is no real logic for an access charge since no business model can absorb it." The only way forward is therefore complete elimination of the access charge. Gartner’s recommendation is to progress towards cost-based, revenue-sharing interconnect agreements, and this can only be facilitated by the regulator.

Swings Must Be Overcome
Rajagopalan in his article contrasts the old and the new TRAI, which is now soft towards incumbents as a backlash of its earlier form. What was inevitable to the earlier TRAI has only been postponed. It is only a matter of time before market pressures again push the present TRAI, DoT and the incumbents into a more realistic acceptance of the present business dynamics.

In fact, though forgotten by many, the first real interconnect agreements were put forward by the previous TRAI as early as 1998-99. These were outright rejected by DoT since they jeopardized the revenue models of both BSNL and MTNL. TRAI was then taken to court by MTNL for overstepping its mandate. The regulatory body was dismantled, and then reconstituted.

Probably, it’s time for Round 2.

Arun Shankar former executive editor Dataquest