The Hindu : Opinion / Editorials : VIRTUOUS CYCLE IN TELECOM TARIFFS

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Thursday, Jan 13, 2005

Opinion

Opinion - Editorials

VIRTUOUS CYCLE IN TELECOM TARIFFS

WITH THE TELECOM Regulatory Authority of India (TRAI) reducing one of the levies on calls made to and from mobile phones, phone rates should come down from February 2005. The levy, known as Access Deficit Charge, ranged from 30 paise a minute on local calls to Rs. 4.25 a minute on incoming international calls. It is meant to compensate the public sector operator, Bharat Sanchar Nigam Limited, for certain unviable services it is forced to offer. The high levy instead went on to spawn a roaring grey market in international calls estimated at Rs.2,000 crore. The new rates will still offer the grey market arbitrage opportunities to exploit, and there must be greater vigilance on the part of the Government and stringent penalties on violators if it is to be extinguished.

Yet the TRAI move has stirred the pot in another sense, for the good. It is one of those axioms of market economics that when prices are lowered, demand goes up. Nowhere has this worked as pointedly as in the telecom sector, specifically in the case of the mobile telephone. Started just nine years ago, the mobile telephone is now the new symbol of a nation finally getting connected. The number of mobile phones has grown from zero to 47 million during this period — the fixed line telephone that first came to India in 1882 is now left stagnating at around 43 million. Driving this stupendous pace of growth of mobile telephony is not just the versatility and ease of use of the instrument but the steady decline in the cost of using it. When the cellular mobile service was first introduced in 1995, the rate for talking to another user in the same city was as high as Rs.12 per minute; speaking to another city more than 1,000 km away would have meant rates in excess of Rs.40 per minute. A series of regulatory interventions over the years, the reduction of government levies, and, most importantly, the pressure of competition among multiple private service providers in every region have now brought the tariffs down to less than Rs.3 per minute for calls to any part of the country. With the latest cut in the levies by 30 paise for every minute, the tariffs are expected to fall further and draw many more users. Over the past two years, the number of mobile users has grown by almost 80 per cent each year. The new price incentive should help the industry sustain such a growth rate.

The implications are significant. Mobile telephones so far have been an urban phenomenon. But with their utility being consistently reinforced and their prices coming down sharply, they should soon be within the grasp of large numbers of rural consumers. The Government has set a target of reaching the telephone to 250 million people over the next three years. Access and affordability are the key to reaching this target. It means, first, expanding the mobile signal coverage to every part of the country, if necessary with generous disbursements from the Universal Services Obligations Fund. Secondly, it means sending tariffs even lower by cutting levies further. The Government and industry have found technology to be a great ally in the expansion of services. As volumes have grown, technology has brought about substantial reductions in the cost of providing the service, which when passed on to consumers have evoked even greater participation from them. In such a virtuous cycle lies the potential to bring connectivity to the vast tracts of rural India.

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