TRAI unlikely to recommend floor pricing

Decline in revenue earned by telecom companies in India

Telecom regulator TRAI is unlikely to recommend floor pricing for voice and data services in India due to ideological as well as practical reasons, according to industry officials.

The telecom regulator today came out with a consultation paper saying it wants to broad-base the discussion on setting minimum price for data and voice. At present, it said, only the voices of industry representatives — such as companies and stock analysts — are getting amplified, while the voices of consumers are not getting reflected in the media to the same degree.

Today’s consultation paper has taken many people by surprise, as the demand for setting a floor price for voice and data was originally raised because new entrant Reliance Jio was forcing everyone to keep prices low by keeping its own tariffs at low levels.

However, Jio finally raised its prices by around 25% earlier this month, reportedly after government put pressure on the operator on behalf of the other telecom providers.

Comforted by this, Airtel and Idea Cellular too have implemented similar price increases.

Despite this having taken place, said TRAI in its introduction to the consultation paper today, there continue to be calls and discussions on putting in a minimum price. It has therefore become necessary, added TRAI, to address the issue in a wholesome manner after giving everyone — including consumers — a chance to share their input.

“In spite of announcements regarding tariff readjustments by all major telecom service providers, there are speculative media reports about floor price fixation by the regulator and unhealthy competition if such interventions are not done.”

This current discussion in the media, TRAI pointed out, is hardly balanced, as it has tended to favor the interests and opinions of the companies and investors, while the interests of the consumers are not getting a proportionate level of attention.

“The debate in the media, however, overwhelmingly reflects the viewpoints of industry players and reports of investment bankers…The media debate does not reflect the views of all stakeholders, particularly consumers, adequately. A lopsided deliberation will only result in confusion, uncertainty and may not be beneficial for the smooth growth of the telecom sector,” it said, justifying why it felt the need to come out with a consultation paper on the subject.

Given the facts highlighted in TRAI’s consultation paper, many believe that the regulator is unlikely to recommend any minimum pricing guidelines as they will be seen as anti-consumer and anti-competition.

Average revenue generated by 1 subscriber in India


Secondly, industry officials point to several practical difficulties in implementing any minimum price for voice and data.

Currently, voice, data, SMS and even content are given as part of the same pack in most cases and not charged separately.

For example, a pack costing Rs 200 per month will come with 1.5 GB of data per day, unlimited voice calling, free SMS and free access to video and content for a period of 28 days.

“Out of this 200 rupees, it is difficult to figure out what is the cost of data, what is the cost of voice and what is the cost of content,” pointed out an industry official.

The only other option, pointed out the official, would be to ban such packs and force telecom companies to sell data, voice, content and SMS separately, each with its own charge.

But even then, they pointed out, attempts to put floors on the prices of these offerings will still be very cumbersome.

“The price of data varies hugely based on validity,” pointed out another official. He pointed out that Jio charges only around Rs 4 per GB for data that is valid for only 24 hours, while it charges Rs 21 for a 1 GB pack that has multi-day validity.

What makes it even more complicated is the extreme popularity of such packs. It is estimated that over 97% of all wireless data consumption today occurs in the form of such bundled plans, in which unused data often lapses at the end of the day, instead of being carried forward.

Because of this short validity, consumers on average use only around 12 GB of data per month, even though, on average, they get around 1.5 GB of data per day, or 45 GB per month. The remaining 33 GB is extinguished without being used.

On the other hand, if the entire 45 GB of data were to be valid for one month, then consumption would have been around the 30-35 GB mark, point out officials.

This is the reason why daily data is priced at one-third or one-fourth of the monthly data price, and why the price of such short-lived data packs cannot be compared with that of longer-validity packs.

Therefore, if TRAI were to set a floor price, it would need to give separate floor prices for data based on validity: Rs 5 per GB for data valid for 24 hours, Rs 10 per GB for data valid for 1 week, Rs 20 per GB when validity is 1 month, Rs 30 when it is 1 year and so on.


Finally, there is the question of voice pricing.

Voice that is given ‘free’ with data packs today accounts for about 80% of the total consumption.

Because the price of voice calling is already included in the cost of the data pack, it has become almost impossible to break it out. Without breaking it out, TRAI cannot apply a separate floor pricing for voice calls, such as 10 paise per minute.

On the other hand, it is the sharp decline in the price of voice that has brought companies such as Vodafone Idea and Bharti Airtel to the brink of bankruptcy, and therefore, any move to address their financial condition has to take note of voice pricing as well.

To put this in perspective, the total revenue generated from the sale of voice and data to consumers in India has fallen from Rs 1.55 lakh cr in the year ended March 2017 to Rs 1.03 lakh cr in FY19 — a decline of around 33% in two years (see image on top).

The blame for this decline goes to voice services, rather than data. The total revenue generated by companies from data, in fact, has been rising, even as the total industry revenue has been falling.

For example, telecom operators generated only Rs 22,265 cr from data services in 2014. This rose to Rs 31,120 cr in 2015 and to Rs 35,079 in 2016 — when Jio entered the market.

In the next year — 2017 — revenue from data continued to grow and hit Rs 38,882 cr.

Revenue from Data Services continues to grow despite fall in voice

In 2018, the increase was even more substantial, and data services contributed a whopping Rs 54,671 cr during the year — or more than half of the total revenue.

However, putting a floor price for voice calling is not as simple as it sounds. Besides such practical difficulties, TRAI has pointed out some ideological concerns that it has with the request for setting floor prices.

Primarily, it pointed out, that setting a minimum price is akin to protecting inefficiency.

“Most economists are sceptical about price controls as they tend to distort the allocation of resources. They have argued that price floors tend to convert a consumer-surplus into a producer-surplus, thus benefiting the producers at the cost of consumers. Fixing of a floor price is, thus, fundamentally against the consumer interest.

“Not only this, price controls cause a net Dead Weight Loss to the economy, resulting in the loss of productive efficiency in the economy. A floor price is, therefore, considered inefficient for the economy.”

It also pointed to the difficulties of trying to calculate the costs incurred by an operator in providing a service like voice or data, and trying to fix that as the minimum.

“The setting up of floor price, therefore, must be made dependent on the cost of provision of service. It is universally acknowledged that different service providers have different cost structures and, therefore, different cost of delivery of services… Voice calls in three Indian networks are being provided using combination of 2G, 3G and 4G technologies.

“The cost of processing the calls on different technologies is widely different. While the cost of a voice call on 4G networks is very low, it is comparatively higher in the case of 2G and 3G networks. So, it becomes very difficult to arrive at a benchmark cost that is applicable across all technologies,” it noted.

Nevertheless, TRAI pointed out, it still wants to give a platform for everyone to discuss their concerns on this topic, especially given widespread concerns that all operators are not coming together to implement a price increase.