National Roaming Ceiling — How Small operators mounted losses
Consumer welfare is best achieved by carefully balancing regulations and a competitive environment conducive to investments and innovation. Section 11(2) of the Telecom Regulatory Authority of India Act, 1997 empowers TRAI, Telecom sector regulator, to notify rates for various telecommunication services. Over the years, these tariff regulations have played a vital role in creating a balance for favourable growth of the telecom industry.²
National Roaming Tariffs were last revised and restructured in April 2015 by the 60th amendment to the TTO, as a sequel to the downward revision of underlying cost components since the 18th amendment of 2002.
Meanwhile, Operators were given the flexibility by leaving the wholesale inter-operator settlements to market forces and regulating only retail roaming tariffs as a ceiling rate.
Subscribers benefited from the reduced ceilings, and competition has ensured that roaming tariffs have for a long time been operating at a level that is below the tariff ceiling prescribed by TRAI.
The affordability of telecommunication services relies on efficient and cost-effective networks, operations, and competition. India has come a long way with embracing the concept of shared services, be it Towers, IT systems/platforms and other elements, thus taking a significant step forward and lowering entry barriers for new and innovative competitive forces.
The introduction of the Unified Licensing framework sets the stage for opening an efficient and competitive wholesale market for network access and telecommunication products and services.
From 2002 onwards, National Roaming services and tariffs have traditionally been priced significantly higher than services provided on own networks despite the actual cost of providing such services not being considerably higher than that associated with delivery on own web.
The charges levied for the provision of Roaming service are based on Origination Charge, Carriage Charge, Termination Charge, IUC (Interconnect Usage Charges & Incremental Costs (maintenance of TAP files, processing/ settlements by Clearing House, signaling charges)
However, in the years since then, the industry has seen a progressive disparity in the sizes of various operators with the onset and growth of new entrants in the marketplace. The situation from 2009 to 2014 was such that while the leading incumbent operators (Airtel, Vodafone & Idea) have Pan‐India operations, there are also pure regional players ( Telenor, Aircel, Tata Tele, Videocon) in the market. Furthermore, there is a substantial difference in the leading market share versus smaller operators even within a service area.
The fundamental issue raised in the Indian marketplace concerning national roaming is the lack of good wholesale regulation, ensuring fair and transparent competition in the retail market to the benefit of the Indian consumer.
Incumbent operators capturing profit: The ceilings give incumbent operators incentive to set the commercially negotiated wholesale national roaming rates as high as possible to capture the total profit of the artificially high roaming prices in the Indian market. Smaller operators will have no opportunity to provide cheaper and better services to consumers unless providing such services at a loss.
Retail regulation is only a partial solution: Imposing more stringent retail regulation on roaming while not addressing the wholesale rates is likely to limit competition in the national roaming market further. There is a clear risk by reducing the smaller operators’ ability to compete with the incumbent operators in the market effectively.
Potential increase in Tariffs across segments3: Mobile operators earn around 8%- 9% of their revenues from roaming charges, and with the introduction of free-roaming, revenues of small operators will be hit. These operators will be left with no choice but to re-balance/increase tariffs, which will impact subscribers and their operability.
With the exit of smaller operators between 2015–2017, the incentive and appetite for national roaming agreements have diminished, leaving the market in the hand of the incumbent operators. To conclude, the exit of small operators could be because of many other issues that prevailed during that time. Still, the larger question is, was the regulator successfully implementing a level playing field?
References
1 “Final Press Release — Trai.gov.in.” Accessed March 10, 2022. https://trai.gov.in/sites/default/files/prelease20agus.pdf.
2 “Regulatory Reform in the Telecommunications Industry — OECD.” Accessed March 10, 2022. https://www.oecd.org/regreform/1960562.pdf
3 “Coai Response to the Trai Consultation Paper on ‘Review of …” Accessed March 10, 2022. https://trai.gov.in/sites/default/files/201304090534531309568COAI.pdf.
