Floor price ain't good maths

Topics TRAI  | Vodafone Idea | Reliance Jio

Nobody quite knows why Vodafone group chief executive Nick Read wants to meet Telecom Minister Ravi Shankar Prasad later this week. Read — earlier the chief financial officer at the UK-headquartered telco — is a numbers man with a degree in accounting and finance and hence his meeting with the minister at this critical juncture is expected to be about the maths of doing business in India. It could also be about the maths of leaving India.


Vodafone Idea, the joint venture operation in India, has already made multiple representations to the government with a wish list so that its business can be sustainable. Besides asking for a moratorium and long-term staggered payment of dues linked to adjusted gross revenue (AGR), the financially-stressed company wants the minimum tariff for mobile data to be fixed at Rs 35 per GB, almost eight times of the going rate now, and voice calls at 6 paise per minute from April 1. It’s possible that Read may pursue the point about setting a floor price in his meeting with Prasad as Vodafone has calculated its business viability based on that premise. But, however tempting it may be for India to retain a multinational like Vodafone for the sake of international business confidence, the government should say no to the request for a tariff floor.


The ball is in fact in the court of the Telecom Regulatory Authority of India (Trai) to take a call on tariff, which currently is under forbearance, letting the market to decide prices. Trai chairman R S Sharma, who has six months to go before his term expires, had a thing or two to say recently about fixing tariffs after Vodafone as well as the Cellular Operators’ Association of India (which has Bharti Airtel and Reliance Jio as members apart from Voda Idea) made a pitch for a floor price. Trai, which had in December floated a consultation paper on the subject, would not expedite the process for any reason whatsoever, Sharma has indicated. He also said that telecom operators can themselves fix a floor price if they feel an urgent need for it. That makes sense. Going forward too, the regulator must not upset the industry dynamics by fixing a minimum tariff either for calls or data, even if that means helping the disruptor —Reliance Jio — and turning down Vodafone’s as well as Airtel’s distress call. Here’s why.


Incumbent telcos (Airtel, Voda Idea) want to contain Jio’s continuous deep discounting through a floor price for the industry, so that they’re able to raise tariffs without the fear of losing customers to competition. However, that may only offer a short-term gain to the debt-laden industry, while taking the spirit of ‘fair competition’ away from the telecom sector. True, the competition has not been fair along the way and the regulator hasn’t helped much to get the equilibrium back. But setting a floor price is not the sign of a promising economy and we should not fall for it. After all, tariff forbearance, in place for 16 years, has mostly served us well despite Indian telecom rates being among the lowest.


Currently, except for the ceiling tariffs for national roaming, fixed rural telephony, international private-leased circuits, domestic-leased circuits and mobile number portability charges, all other telecommunication services are under forbearance.


Consultation on fixing tariffs is not new. Trai has had it in 2012 and 2017. In 2012, after the consultation process, Trai concluded that the policy of forbearance should continue as it was based on economic rationale appropriate for the prevailing situation. Also, it was in sync with international best practices. The policy was reviewed in 2017 following demands of floor price to prevent predatory pricing and again a majority of the operators agreed it was a complex exercise.


Now that the issue is hot once again, the stakeholders should go back to the basics. First, it’s a complicated process as the Trai’s latest consultation paper points out. Second, it’s usually avoided by regulators in developed countries as it is considered anti-competitive and anti-consumer. Third, it can delay the adoption of new technologies. Finally, it not only makes the telecom services more expensive, but it can have a cascading effect on the other sectors of the economy.


Among the countries to have introduced floor price at some point or the other are Turkey, Zimbabwe, Nigeria, Bangladesh and Sri Lanka. It will be poor maths for India to follow these countries on tariff floor, even if Read is able to argue his case well in the minister’s office.


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