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?