There is no drop in revenue but a dip in the growth rate of the revenue from telecom services because of reduction in tariff by telecom service providers due to competition. In an interview with Governance Now, TRAI head RS Sharma explains how the revenues will pick up soon. Countering the argument that the telecom industry is becoming an oligopoly market with the concentration of power in the hands of a few, he says that competition is good for any sector.

What are the key challenges before the telecom sector?

The technological revolution in the telecom sector is impacting the nature of services being delivered. The emphasis is shifting from voice centric services to delivery of data centric services and platform for a plethora of over-the-top services. These developments are paving way for introduction of new concepts such as cloud computing, Internet of Things and machine-to-machine communication. The emerging challenge is to maintain a balance to protect the interest of telecom service providers, while encouraging the growth of technological innovations for the benefit of consumers.

Making broadband ubiquitous and affordable is another challenge. Although the number of internet users has increased over the years, there are still a large number of unconnected persons, especially in rural and remote areas of the country.

Another challenge is to ensure high quality of telecom service. TRAI has been constantly working in this direction and has recently issued new regulation for assessing network quality. We hope this will be able to fix the issue.

The financial health of telecom operators is getting worse. The debt has only increased over the past several years. What went wrong?

The revenue from telecom service sector over the last four years is constantly increasing. However, the growth rate of the revenue from telecom services has slackened due to reduction in tariff by telecom service providers due to intense competition. The phenomenal growth of data usage and the affordability of data would soon result in the picking up of revenues as happened in the case of voice calls earlier.

This drop in revenue is a temporary phase and in due course revenue of telecom services would start rising. Further, as the data services are the basic infrastructure of the new economy, they should otherwise also be ubiquitous and affordable for digital and financial inclusion.

The debt comprises of long-term and short-term borrowings. The debt-equity ratio for the year 2015-16 is 1.69, which is not alarming. The use of debt in excess is the  subject matter of the individual company’s prudence, considering its advantages over proprietors’ funds.

The revenue of incumbent operators has fallen, with Reliance Jio offering voice services for free. To what extent has it (or would it) impact the government revenue? 

The fall in collection of revenue may be attributed to several reasons, including the lowering of tariff by the incumbent operators to meet the challenges posed by the new entrant. In addition, the competitive tariff for a wide array of telecom services, whose benefits accrue to a whole range of subscribers, enable higher productivity and efficiency and also contribute to the higher GDP. The economic purpose of telecom regulations is aimed at maximising the overall economic growth of the sector and increase productivity. Therefore, the objective and efficacy of telecom policy should not be viewed only through the lens of maximising government revenue from the telecom services sector. India is poised to become a digital economy with the government’s key initiatives, such as direct benefit transfer, digital financial inclusion, digital literacy and e-governance. It is critical to ensure widespread and affordable data connectivity for the success of these missions. The measures taken to facilitate competition and efficiency in operation of telecom services have not only significantly contributed towards the growth of the sector but also resulted in reduction in data tariff benefiting the customers.

In the interconnect usage charges (IUC) ruling, the incumbent operators have been asking for reasons TRAI chose to use the pure long run incremental cost (LRIC) method. How would you respond? Also, slashing of IUC to six paise is also likely to have an adverse impact on the rural networks. Your comments?

The TRAI conducts all its regulatory exercises through a process of comprehensive consultation in which all stakeholders, including telecom service providers and consumers, take active part.

The TRAI has examined all the costing methodologies proposed by telecom service providers (TSPs) for prescribing termination charges and also the international practices on the matter of termination charges; and concluded that pure LRIC is the best method for determining the mobile termination charge. There are several reasons for choosing this method.

First, pure LRIC is the preferred approach of regulators in Europe and other parts of the world for setting mobile termination charges. Cyprus, Estonia, Iceland, Latvia and Lithuania have determined mobile termination charges by way of benchmarking of other countries that applied pure LRIC method. Pure LRIC method has also been adopted by regulators outside the European Union, such as in Jamaica, Kenya and Tanzania. Second, this cost-based approach is based on the ‘avoidable costs’ concept as recommended by the European Commission and being implemented by European regulators.

Third, the setting of IUC to a level of avoidable cost is the least intrusive solution to reduce the anti-competitive behaviour in the market. Fourth, this methodology provides the best conceptual framework for estimating the marginal cost of interconnection, which ensures operators are compensated for their avoidable costs related to terminating off-net calls in their network. 

Fifth, the pure LRIC approach reduces the ability of larger operators to discount on-net calling, while recovering a proportion of their costs from other operators through the inflow of mobile terminated minutes.  And lastly this approach improves the ability of smaller operators to offer flat-rate for any network calling. The resulting increase in competition will benefit consumers and improve dynamic efficiency.

The TRAI has put to use the pure LRIC method in the intervening period prior to the implementation of Bill and Keep (BAK) from 2020. Many progressive countries, in their journey of setting termination charges, used fully allocated cost (FAC) method initially and then moved on to use LRIC+ method and, thereafter, to pure LRIC. Amongst all available costing methods, pure LRIC is the best candidate to be used in the last stage of the glide path before embracing BAK method.

In India, the telecom sector is currently going through a phase of rapid modernisation and advancement in terms of technological upgrade. The old technologies are being replaced by more efficient packet-based technologies. Most of the service providers have already migrated to packet-based technologies in their backhaul and core networks to reap the benefits of improved network efficiencies. As far as access networks are concerned, all major service providers have either committed to packet-based access networks or have declared plans of doing so in the future.

One mobile operator [Airtel] has started voice service using the technology of Voice-over-LTE (VoLTE) at a very large scale. The largest operator in the country has also launched VoLTE services, while the other operators have announced plans to launch them shortly. Similarly, a few wire-line service providers have started voice over their managed IP networks/ NGN access networks. Against this backdrop, the new regulatory regime on termination charge nudges the sector to stay put on the migration path from circuit-switched networks to packet-based networks.

In packet-based networks, where voice call is merely a low-bandwidth application running over a purely data network, the cost of carrying voice calls is, essentially, very small. In order to reap the benefits of reduced cost and significant efficiencies of the packet-based technologies, the operators, who have not already done so, will soon introduce IP-based technologies in their access networks.

Against this backdrop, nudging the sector towards migration to packet-based networks is a step towards realising the dream of Digital India. Instead of hindering the development of telecom networks in rural areas, the new regime is likely to aid in the growth of the rural networks.

The telecom industry is now an oligopoly market, with three key players: Airtel, Idea-Vodafone and Reliance Jio. Is it good or bad for consumers/subscribers in the short and long terms?

We should not forget that BSNL and MTNL are also important players in the market. In my view, there is no fear of concentration of market power in the hands of a few, at least in the short term. Likelihood of less than five players in the telecom market is quite small. Therefore, any concern relating to level of competition, in my opinion, is rather speculative at this stage. 

Are there monopoly concerns with Jio acquiring a significant market share?

No, I don’t think so. As of July 31, 2017, Airtel had 23.70% market share and Vodafone, Idea had 17.74% and 16.34%. Vodafone and Idea are getting merged in near future. As against these incumbent players, Reliance Jio has a market share of 10.83%. To become a significant market player as per the extant TRAI regulations the operator needs to have a 30% market share. We do not foresee monopoly in the telecom sector in future and are confident that the competition would continue. However, the authority keeps a close vigil to check anti-competition conduct. Competition is good for any sector. Competition initially brought the voice tariffs within the reach of common man and now it has made data services affordable for the masses. We have to keep in mind that data services form the basic foundation over which the entire edifice of the emergence digital economy would rest. Without affordable data tariff one cannot realise the dream of digital India, cashless India and financial inclusion.

There has been lack of clarity on jurisdiction issues between the TRAI and the Competition Commission of India. Where do we stand today on this issue?

Statutorily, the TRAI as a sector regulator is entrusted with protection of consumers’ interest, orderly growth of the sector which inter-alia includes promotion of competition, quality of service and tariffs in the telecom sector. The last two being the exclusive domain of the TRAI as per the TRAI Act, the Competition Act lays down the overarching competition framework in India. There is no lack of clarity or jurisdiction issue between the TRAI and the Competition of India.

The functions and jurisdiction of the TRAI and the Competition Commission of India are distinct and very well demarcated as per the relevant Acts. Prima facie there appears to be no issues.  The TRAI has always made efforts to interpret the TRAI Act and the Competition Commission of India Act harmoniously.