Cut phone tariffs

In normal circumstances, this would never have been allowed — a contract is a contract and it is not the business of governments to bail out loss-making companies. But since the operators lobbied hard, with three governments over as many years, and it even saw the shifting of communications minister Jagmohan who was obdurate, they got their way.

Of all the proposals doing the rounds, the one that seemed the fairest of all was to pay these operators for the investments they had made in setting up networks and allow them to rebid for the circles. But this time, instead of paying a fixed licence fee to the government, they would go in for revenue-share.

This, however, was not acceptable to the operators who felt that the actual value of their licence was not the cost of the network, but the number of subscribers they had for their services — banks and financiers evaluate telecom networks according to the customer-base, since that represents a headstart over potential competition. So, after some dexterous manoeuvring, including arguments from luminaries such as the Attorney General, operators have now been allowed to retain their existing telecom circles; only now they will pay a vastly lower revenue-sharing licence fee.

The justification being given for allowing this is that while the earlier rules allowed for only two operators in any telecom circle, there will now be free competition with any number of new players. That, however, is an argument vastly over-stretched. Cellular telephone networks, and increasingly even the fixed’ or landline ones, transmit their signals through airwave frequencies, or bandwidth. And since India has a shortage of bandwidth, the chances of free competition appear remote.

It is not this paper’s argument that the system of high fixed licence fees was a good one. Indeed, high licence fees translate into high user charges, and that prevents businesses from using telecoms optimally, and using powerful tools such as the Internet effectively to reduce transaction costs.

But we believe such bailouts are not only unhealthy, they make the system vulnerable to more such blackmail from other areas. But now that the Cabinet has ratified a bailout, the best way to retrieve matters is to ensure that customers also benefit from this bonanza. While the TRAI will have to work out the numbers, a rough calculation shows that for cellular operators in the metros alone, the Cabinet decision will lead to a halving of annual licence fee payouts — that should roughly result in a reduction in monthly subscriber rentals by a fourth, and a little over 10 per cent in the call rates.