Sunday, November 25, 2007

The Nexus

Politics and businesses often work hand-in-glove. They need to as they feed off each other. It is some kind of symbiotic relationship. I think it is required as well. But at times, they forget the consumer or think that the end consumer is a gullible, non-suspecting and defenseless if the two join hands.

Something similar happened when A Raja, Minister of Information Technology and Communication, said that TRAI needs to put together a proposal to fix minimum tariffs. The statement goes on to say that it will benefit the end consumer to a great extent. I do not think anyone from the Ministry or TRAI (Telecom Regukatory Authority of India) would be able to articulate the ‘benefits’, since there aren’t any. This is clearly an in-your-face shameless PR job.

I do understand that the Indian Telecom scene is fiercely competitive. Most firms have been facing a falling ARPU (Avg. Revenue per User). Hence, such a proposal will help the telecom companies to cap their downside. In effect, the end consumer would become price neutral beyond a point as everyone might end-up offering the same rates. Telecom market might become less competitive and companies, to their immense relief, might see the end of the era of falling tariffs. Of course, this comes at the expense of the customers (you and me) who stand to gain from the competition!

This also comes at the expense of an operator(s) who is more efficient in running its business. Such an operator would not be able to pass on any cost benefits to the customer beyond a certain point as TRAI would have capped the minimum tariff. This would imply that an operator would have no incentive to makes operations more efficient or seek better technology to become more competitive.

In a time when we are trying to make businesses more open and competitive, government should avoid taking such retrospective steps. I hope sense prevails and TRAI comes up with a proposal to do away with such an idea. As with everything else, only time would tell!

1 comment:

Abisurd said...


There is a flip side to this discussion. One could argue that because of the price war driving down the ARPU, the operators are being forced to cut corners. This could mean freezes on upgradation of technology to provide better connections and voice quality leading to frequent disconnections, or unclear conversations. This would in general degrade the service being provided by the operators, and since it might happen almost equally for all operators, the service levels would go down across operators and hence shifting from one operator to another might be an act in futility. In the kind of price wars we are seeing here, acquiring new customers seems enticing but at the same time drives down ARPU. I have a feeling Airtel's service levels have gone down in the recent past and it may be attributed to the price wars (or the cost of acquiring new customers)

Setting some minimum pricing may prevent this scenario from becoming a reality. The only hurdle in this scenario is for the regulator to be able to decide the minimum prices that are neither too high so as to hurt the customers not too low for the operators to be unable to provide a good service. The risk is usually on the former side, as the telecom lobby is rather strong and may try to fix high values of the minimum prices.