India is pressing ahead with an unprecedented plan to fine wireless operators Rs.1 from 1 January for calls that unexpectedly disconnect mid-conversation, rejecting claims the step could cost the industry as much as $8 billion a year.
India is pressing ahead with an unprecedented plan to fine wireless operators
The levy, limited to three calls—or Rs.3—a day per user, will be credited to customers for poor service, said R.S. Sharma, chairman of the Telecom Regulatory Authority of India (Trai). Networks are straining as investment hasn’t kept up with surging voice and especially data traffic, he said.
“There are many quality of service issues,” Sharma said in an interview in his office in New Delhi, adding that companies “are tuning their networks to cater to data, creating scarcity in the voice segment.” The regulator estimates the total annual fine would be less than $120 million a year—a fraction of the industry’s $22 billion revenue. On the other hand, the body representing operators such as Sunil Mittal’s Bharti Airtel Ltd and Vodafone Group Plc’s local unit says it would cost about $8 billion, if half of India’s 1 billion mobile subscribers claim Rs.3 a day.
“I’m not aware of this occurring in any other country,” said Chris Lane, a senior research analyst at Sanford C. Bernstein and Co. in Hong Kong. “A lack of spectrum is the major reason for the dropped calls, and the government’s policy of ‘drip feeding’ spectrum to assure high auction prices is a major contributor to the problem.”
Poor service?
The government’s most recent auction of wireless airwaves concluded in March, raising a record Rs.1.1 trillion from India’s indebted mobile-phone industry. Such spending, together with fierce competition that curbs tariffs, is putting pressure on profit margins.
Even so, subscribers have to be compensated for poor service, Sharma said in the 19 November interview, adding they will only get the payments if “the call drops due to the deficiency of the originating service provider.”
The industry trade body, the Cellular Operators Association of India, said the regulator’s estimate of the fine’s impact may fail to include subscribers who try to “game the system.”
“Calls deliberately made from bad coverage areas, from basements, elevators, or when the battery is disconnected or the phone is on airplane mode, will reflect as dropped calls,” said Rajan Mathews, the director general of the association. “There is no way for operators to identify such calls. All we’ll know is that a call dropped.”
A better approach would be to encourage operators to invest in infrastructure, such as more mobile-phone towers, Mathews said.
Annual compensation for dropped calls may range from about Rs.10,800 crore if one-tenth of subscribers claim it, toRs.27,100 crore if a quarter do, rising to Rs.54,100 crore if half of users take the step, according to the association. The trade body in October estimated yearly industry revenue at Rs.1.47 trillion.
The regulator puts the number of so-called dropped calls at 8 billion a year. Compensation for all of them would come to about $120 million. But the payments are capped at three calls daily, which the regulator argues would substantially reduce the actual amount paid.
Fines loom even as operators struggle to maintain profitability. The net income margin at Bharti Airtel shrank to 5.6% in the year ended March from 21.5% in 2010, according to data compiled by Bloomberg. The measure for Anil Ambani’s Reliance Communications Ltd dropped to 3.3% from 22.5%.
The pressure shows in the performance of telecommunication stocks. The 13-member S&P BSE Telecom index has climbed 39% in the past decade, lagging behind the 191% surge in the broader S&P BSE Sensex.
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