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Trai to rationalise mobile telephony service charges - Views on News from Equitymaster
 
 
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  • Sep 1, 1999

    Trai to rationalise mobile telephony service charges

    According to newspaper reports, the Telecom regulatory Authority of India (Trai) has proposed a substantial reduction in tariffs of mobile telephone services. This move follows the migration of existing cellular operators from a fixed licence fee regime to a revenue sharing arrangement.

    The main highlights of the new proposal are:

    • Monthly rental to be reduced from Rs 600 to Rs 475 per month
    • Outgoing call charges to be reduced from Rs 6 to Rs 4 per minute
    • Pulse rate to be increased from 20 seconds to 30 seconds
    • Incoming calls to be free from November 1 1999
    • Tariff for a fixed to mobile call to be cut from Rs 3.9 per minute to Rs 2.4 per minute for a two-minute call.

    The growth in demand for Indian cellular telephony services has at best been lacklustre. This has come as a major disappointment for the cellular operators, which had bid large amounts for telecom circles, based on the so-called inherent potential of the Indian market. The cellular operators have been caught in a precarious situation in which they have to grapple with high licence fee and lower than expected subscriptions and usage simultaneously. The price of misjudgment in estimating the value of the telecom circles is being borne by the user in terms of higher tariffs. This has further stymied the growth of the industry.

    A comparison between the mobile telephony charges in China and India clearly brings to light the reasons for the larger difference in the industry growth rates.

    The Government of India has, in a way, bailed out (whether rightly or wrongly is another matter) the cellular operators by permitting them to shift to a revenue sharing arrangement. This has resulted in immediate improvement of expected cash flow position of various operators. The Trai has used this improvement in cash flows as a lever to push through a plan to rationalise cellular telephony service charges.

    If implemented the cellular industry might as yet witness the growth levels that are prevalent in countries such as China. The reduction in tariffs will go a long way in making Indian telephony charges more competitive vis--vis those in other developed/developing nations.

     

     

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