Fixing the cartel

Telecom Minister Dayanidhi Maran is spot on in accusing the country’s private sector long distance carriers—Reliance Infocomm, VSNL and Bharti—of forming a cartel since tariffs in the sector are quite divorced from costs.

In the case of international long distance calls, for instance, while foreign carriers get paid 35-50 paise per minute for carrying calls from Mumbai to New York, and an Access Deficit Charge (ADC) of Rs 2.50 has to be paid per minute, the tariff charged to consumers is in the region of Rs 14 per minute.

Similarly, while the ADC rate for incoming calls has fallen by about a rupee since February, ILD firms still use the old, and higher, settlement rate while settling bills with foreign carriers. The reason why tariffs haven’t fallen in this sector as dramatically as they have in other sectors, as the minister has said, is due to the lack of robust competition here.

Unlike the case in countries like the US where consumers can dial a carrier access code to determine which network they want to carry their national and international long distance calls on (you could be using a Reliance phone but dial a code to ensure your calls are carried on a Bharti network, for instance), this has not been mandated in India.

As a result, there is no stand-alone long distance carrier in the market—the only one, Data Access has folded up since, the way things are in the market, only those firms who also have their own captive consumer base of domestic customers like Reliance and Bharti, can survive.

In the event, since each company knows the customers of their mobile/fixed line phones cannot use any other service provider when they wish to make/receive long distance calls, they are not really competing with one another and that is why tariffs are not falling as they should.

It is ironic that these three companies should be asking for a compensation of Rs 2,805 crore from the government in case the national and international long distance business is opened up further, since they’ve all made their fortunes when existing businesses in other segments were opened up— it was only when the fourth cellular licence was allowed, at a bid price which was less than half that paid by existing operators after NTP 1999, that Bharti got the kind of pan-Indian footprint that it has in the mobile business, for instance.

In any case, there is nothing in a licence which says it will be closed for others. The paroblem with what the minister is saying, however, is that it is the government, albeit the previous one, that is responsible for the state of things. On carrier access codes, for instance, there wasn’t any move to implement this despite knowing its impact.

Similarly, when Trai decided it would hike the entry barriers for long distance carriage (as compared to the existing entry fee of Rs 25 crore for international long distance, Trai raised this to Rs 107 crore in year one, under the proposed Unified Access licence), the government didn’t really protest. The list goes on. Indeed, while the minister will try to reduce the entry fee, this alone may not help. He will have to ensure that consumers have a choice about who will carry their long-distance traffic as this is the only way there can be genuine competition.

But if he wants his policies to stand the scrutiny of the legal system, this cannot be done by unilateral fiat, it has to be done through the Trai process—that is, the government has to make a reference to Trai first, and then go about the business of cartel busting.
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