Mobile tariffs may rise by 8-9%: Trai chairman Rahul Khullar

Telecom Regulatory Authority of India (Trai) chairman Rahul Khullar sees mobile call rates rising by 8-9% over the year as phone companies weed out freebies. He also said in an interview with ET that the government should hasten the opening up of spectrum for high-speed access and that the new access and that the new M&A norms were too stringent and would inhibit much-needed consolidation in telecom.

Khullar said though headline tariffs were currently at Rs 1.2 per minute, the net revenue earned by the industry or real isation rates — were as low as 44-45 paise. "So, what you should be ready to see is some marginal rise in the effective call rates. You won't really feel the pinch of the tariff hike because what operators are really doing is clawing back the freebies" Khullar said.

This means subscribers could find free SMSes and talktime offered by operators steadily declining.

Khullar, however, warned that any move to increase headline tariffs won't go down too well. "What we don't expect is a rise in the headline tariffs. In case there is a rise in the headline tariffs, the authority will surely look into the matter and, depending upon the case, might intervene," the chairman said. The regulator has a stated policy of `forbearance' on tariffs.

Referring to the quarterly results of Bharti Airtel and Idea Cellular, Khullar said there were ample signs that growth was returning to the sector but warned that to keep the momentum going, the government should soon put in place a clear pro-industry policy on the most critical issues of spectrum sharing, trading, auction and overall consolidation.

Khullar urged the telecom department to move faster on making more spectrum available.

He said the government's inability to increase the availability of airwaves couldn't be explained, especially on 3G spectrum. "Four years have lapsed from the time of 3G auctions, no one could get it across the country in 2010 auctions owing to shortage of airwaves and the government further also proscribed people from sharing it," he said.

Khullar said availability of airwaves was critical for the industry.

"The next big concern for the industry is scarcity of spectrum, fragmented nature and overall availability of spectrum, leave aside problems of contiguity which are huge, particularly in 800, 900 and 1800 (Mhz). So DoT should notify the spectrum trading and sharing guidelines and start the market-driven process for consolidation. While it may result in a shakeout in the industry , whatever little spectrum is available, fragmentations will end."

If the government can't release any more 3G spectrum, then DoT must find a way out through consultation and dialogue with the industry, Khullar said.

"At least 2100 Mhz should be put up on auction immediately and if you can't then devise rules permitting sharing of 3G spectrum and charge them for it," he said. In such a scenario, the government must allow the operators to share whatever airwaves they have and pay a flat charge to the government, he said.

He indicated that getting DoT to change its way of thinking has taken some effort.

"When I joined here two years ago, all this was a taboo, sharing, trading etc. It has taken huge effort to push the department in the direction of these changes."

The Trai chairman allowed that various considerations had complicated matters for DoT in the past two years or so. "Now there is a new telecom secretary. To be fair to them, they need to be given some time."

Operators are unhappy with telecom department's new mergers and acquisitions rules. The cap of 50% on the market share of the combined entity and the cabinet decision that a buyer must pay a market price for spectrum bought if it was not purchased by the seller through auctions will discourage consolidation, critics have said.

Saying that the cap could certainly be eased, Khullar said, "This bug of increasing competition which first led to 12-14 operators in a circle and now has led to this situation. All over the world there are about threefour operators. In US, AT&T and Verizon and even in Germany there are basically two main operators."

The cap currently prohibits any of the three large operators Bharti Airtel, Vodafone and Idea Cellular from consolidating.

On operators being asked to pay market price, Khullar said the government needed to incentivise exit and entry from the market. "If the cost of consolidation is letting an operator accumulate a premium on spectrum, it might be a small cost to pay for consolidation," he said, adding that he was not making a case for the entire windfall gain to accumulate to operators. "But suppose an operator can buy it at 80% of the market price, then there is still some incentive for both the operators to enter into the deal."

The regulator recently issued its recommendations on sharing of airwaves, which though more liberal than those of the telecom department, still fell short of industry expectations. "Only certain things are within my purview," Khullar said.

"DoT as licensor has stipulated ceilings on spectrum holding of 25% and 50% and as a regulator I can't change these."

Trai said in its recommendations that while sharing airwaves only half of each operator's holding must be counted while calculating the respective caps. Explaining how he had to balance various interests, including the stated public policy, Khullar said, "If I had relaxed the caps then all the small players with 5%, 10% market share would say that this was done to ensure the GSM lobby drives all competition out."

Interestingly, while the regulator did not permit inter-band sharing of airwaves, the recommendations categorically said the regulator reserves the right to revisit this issue of permitting inter-band sharing in the future. Industry experts said the issue will need to be revisited once the regulator begins to work on the mobile virtual network operators (MVNO) policy .

"The problem in permitting interband sharing is that this runs counter to the stated government policy on intra-circle roaming arrangements. Reliance Communications, Aircel and in some cases even one of the top three operators (Airtel, Vodafone, Idea) is affected by this policy," he added.

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