TRAI and tariff reform The views expressed in this paper are those of the author and do not necessarily reflect the opinions of the ITU or its Membership.

TRAI and tariff reformTRAI and tariff reform

The views expressed in this paper are those of the author and do not necessarily reflect the opinions of the ITU or its Membership. Dr Kelly can be contacted by e-mail at [email protected]

Dr Tim Kelly (ITU), Seminar on tariff

strategies for competitive

environments,ALTTC, Ghaziabad,

20-22 July 1999

TRAI and tariff reform

AgendaObjectives of TRAI tariff reform processInitial TRAI proposalsNew tariffs implemented, 1/5/99

Fixed chargesLocal call chargesLong distance call charges International services

Discussion

TRAI and tariff reform

TRAI tariff study: ObjectivesEncourage access to and use of the

networkCater to social objectives (e.g., targeted

subsidies)Cost-based prices

as preparation for competitionso that benefits are shared by all users

Maintain profitability for all operators

TRAI and tariff reform

TRAI’s proposed price regulation regime

Service Price cap principle Comment

Rental Below cost price Cost-based rental wouldreduce access

Local calls Cost withoutmargin

Upper limit of estimatedcost taken as price

Long-distance

Cost-plus To provide cross-subsidyfor rentals, local calls

Internat-ional

Cost plus To provide cross-subsidyfor rentals, local calls

Other Mainly cost-basedor reportingrequirement only

Depending on service anddegree of competition

Rural subscribers, monthly rental, in Rupees, by exchange capacity

Exchangecapacity

Old New TRAIproposed

<1'000 lines 50 50 120

1’000-30’000 100 100 160

30’000-100’000 137.5 137.5 220

100’000-300’000

180 180 310

>300’000 lines 190 190 310

Urban subscribers, monthly rental, in Rupees,

Exchangecapacity

Old New TRAIproposed

<100 50 70 160

100-1’000 75 120 160

1’000-30’000 100 120 160

30’000-100’000 137.5 180 220

100’000-300’000

180 250 310

>300’000 lines 190 250 310

5075

100

137.5

180 190

70

120 120

180

250 250

160 160 160

220

310 310

0

50

100

150

200

250

300

350

<100 100-1'000

1'000-30'000

30'000-100'000

100'000-300'000

>300'000lines

Old

New

TRAI proposed

Urban subscribers, monthly rental, in Rupees, Old, new & TRAI

TRAI and tariff reform

Reform of rental charges Some progress

Reduction from 6 to 4 in number of slabs Increase of between 20-60 % in value of urban monthly

rentalAverage increase around 30 per cent

But, major problems ahead for DoT and MTNLNo change in rural rentalsTRAI had requested an increase of 60-140% in rural

rentals and 60-220% in urban rentalFurther rises will be necessary in near future

Former local call charges, and TRAI’s original proposals, India

No. of bi-monthly calls

Former percall charge,rural areas

Former percall charge,urban areas

Proposed percall charge, all

areasUp to 120 Free Free Free121-150 Free Free 1.30151-250 Free 0.80 1.30251-450 0.60 0.80 1.30451-500 0.80 0.80 1.30501-1’000 1.00 1.00 1.301’000-2’000 1.25 1.25 1.302’001 plus 1.40 1.40 1.30

Source: TRAI Consultation Paper on telecom pricing, September 1998.

New local call charges, Urban & Rural (calls per month)

No. of calls Ruralsubscribers

No. of calls Urbansubscribers

Up to 125 Free Up to 75 Free

125-225 Rs. 0.60 76-200 Rs. 0.80

226-250 Rs. 0.80 201-500 Rs. 1.00

251-500 Rs. 1.00 Above 500 Rs. 1.20

Above 500 Rs. 1.20

0

0.25

0.5

0.75

1

1.25

1.5

No. of calls

300

600

900

1200

1500

1800

2100

Original TRAI proposals

Former tariff

Ru

pee

s p

er c

all

Cost per call, by no. of bi-monthly calls, rural subscribers old & TRAI proposed

0

0.25

0.5

0.75

1

1.25

1.5

No. of calls

300

600

900

1200

1500

1800

2100

Original TRAI proposals

Former tariff

Ru

pee

s p

er c

all Area of

revenue gain

Area of revenue loss

Cost per call, by bi-monthly no. of calls, rural subscribers old, & TRAI proposed

0

0.25

0.5

0.75

1

1.25

1.5

No. of calls

300

600

900

1200

1500

1800

2100

Former tariff

New tariff

Ru

pee

s p

er c

all

Area of revenue loss

Cost per call, by monthly no. of calls, rural subscribers old and new tariff

TRAI and tariff reform

Reform of local call chargesSome modest improvements

minor simplification to system of call slabs

But major opportunity missedTRAI proposals for reform of local call charges largely

rejected“Free call” entitlement untouched

Net loss of revenue to DoT/MTNL from high volume business subscribers

DoT/MTNL now in poor position to compete

Long distance tariffs, Rps per 3 min peak rate call, by distance

Slab(km)

Oldtariffs

Slab(km)

Newtariffs

Slab(km)

TRAIproposal

Up to 20 1.4 0-50 1.2 0-50 1.3

20-49 2.8 50-200 15.4 50-200 11.7

50-99 7 200-500 k 43.2 200-500 k 29.3

100-199 21 500-1000 61.7 500+ km 58.5

200-499 32.2 1000+ km 86.4

500--799 63

800-1199 84

1200+ km 126

0

25

50

75

100

125

1500

20

0

40

0

60

0

80

0

10

00

12

00

14

00

16

00

18

00

20

00

Ru

pe

es

pe

r 3

min

ca

ll

Former tariff

New tariff

TRAI proposal

Distance, km

Long distance tariffs, Rps per 3 min peak rate call, by distance

TRAI and tariff reform

Reform of long-distance call charges

Some improvementsReduction in call zones from 8 to 5Reduction in price of long-distance calls greater than

800 kmSome degree of distance-sensitive rebalancing

But, much more remains to be doneDistance element still far too significantMiddle-distance calls actually rose in price Ratio between cost of maximum-distance to minimum

distance call is > 90 (should be less than 10, preferably less than 5)

International tariffs, for peak rate call, in Rps per minute

Region Old tariff New tariff TRAIproposed

SAARC &neighbouring

30 24 15

Europe/Africa 50 40 23

North America 60 50 30

International call charges, peak rate, in Rps per minute,

3024

15

50

40

23

60

50

30

Old tariff New tariff TRAI proposed

SAARC &neighbouringEurope/Africa

North America

TRAI and tariff reform

Reform of international tariffsSome progress

Average reduction of 16.7% to North America and 20% to rest of world

India’s international call charges now below those of China & Russia

But, urgent need for further reductions India still losing millions of minutes of traffic to call-back

operatorsTRAI had requested reductions of more than 50% India is still one of most expensive countries in world for

international calls, especially to USA

TRAI and tariff reform

Questions for discussionWhy were DoT and MTNL so opposed to TRAI’s

proposals?The net result means that DOT lose potential

revenue on rentals & fail to gain extra revenue from local call charges. How will DoT make up for the lost revenue?

How great a share of the long-distance market will DoT lose to new market-entrants?

When will be the next round of rebalancing?