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SMS rates may be next to tumble
Published on 5 Nov. 2009 11:30 PM IST
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Paying 50 paise to Re 1 per SMS, depending on your package? Well, the cost to your mobile service provider of delivering your message to another mobile network is less than 1 paisa. That’s because an average SMS consists of 1KB data, which takes a fraction of a second for transportation and termination. This revelation not only belies claims that India has among the lowest telecom tariffs in the world, it could also set the stage for SMS rates to fall sharply. Voice calls are already being offered at 1 paisa per second. As new entrants flood into the market, SMS tariffs could become the next major frontier of the pricing war now raging in the Indian mobile services industry. SMS and other value-added services form 10% of the Indian telecom industry’s annual Rs 1 lakh crore-plus revenues. The current regime followed by telecom operators is `bill and keep’. This means your operator keeps the entire amount that he bills you for the SMS and pays nothing to the network on which the SMS is sent. This is for two reasons. First, the proportion of traffic across networks is roughly equal, and second, the cost of termination is negligible. Trai has so far refused to regulate SMS tariffs along with some other tariffs under what is known as forbearance. Forbearance is usually adopted by regulators when they believe that competitive markets are working and tariffs reflect true costs. As it turns out, the true cost of sending an SMS would never have come to light if new entrants had not been forced to sign interconnection agreements with existing operators at a price that is far higher than the actual cost. Several potential new entrants told TOI this points to a clear need for immediate regulatory intervention. If the price of sending an SMS reflects true costs, it should fall to no more than a few paise, they point out. While telecom minister A Raja has been talking about reducing telecom tariffs by bringing in new competition, it is ironic that factors driving telecom tariffs are coming to light due to infighting between existing operators and due to lack of pro-active regulation. Bejon Misra, chairman, CCEA or Cell for Consumer Education & Advocacy told TOI, “Recent developments have shown that India’s claim of having the world’s lowest tariffs is not true. Trai must promptly intervene to prevent cartelisation by incumbents aimed at defeating the interests of consumers by preventing cost-based tariffs.” Predictably, the Cellular Operators Association of India (COAI) has a different view. Speaking to TOI, its acting director general T R Dua said, “Trai has followed forbearance and that should remain its policy.” Several incumbents refused to comment on the true costs of terminating an SMS but admitted to the existence of a big margin. Stein-Erik Vellan, MD of Unitech Wireless, told ToI, “The lack of cost-based Interconnection Usage Charge (IUC) is perhaps the most significant anti-competitive practice that is hindering free and fair competition. It needs to be overhauled. The regulator made an exception to its policy of forbearance in the spirit of fair play when it intervened earlier to reduce IUC charges for voice calls from 30 paise to 20 paise. Trai must undertake a similar regulatory intervention to create a level playing field in the industry”. Unitech Wireless may be among the first new entrants to launch service in December. As more new entrants prepare for launch, Trai may have no choice left but to intervene. A senior Trai official admitted to TOI that the last review in March had not included a new tariff policy for SMS. “However, new operators have to survive and flourish so we will need to intervene if they complain to ensure a level playing field,” he said. Experts and consumer activists, however, argue that given Trai’s own cost data from its IUC regulation of August 2006 vintage, it need not wait for complaints but should act decisively and immediately.

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