In 2000-01, I spent several months working on a business plan for - at that time - one of the largest opportunities in Indian telecom: the imminent opening up of the National Long Distance (NLD) market. It was estimated at Rs 12000 crores (~$3 Billion) in size and was a BSNL monopoly. Private operators were almost salivating at tearing away chunks of this business... while tariffs were expected to drop dramatically (60-80%), there was also expectation of significant price elasticity. Even if only 50% of the market was addressable (due to infrastructure limitations), a fair share amongst 4-5 players could result in about Rs 1000 crores revenues in 4-5 years. Towards this opportunity, a few operators were ready to pay Rs 100 crores licence fees and offer Rs 400 crores bank guarantees.
Major investments were planned on building out national fiber backbones and setting up switches and points of interconnects at all district headquarters (as per the roll-out obligations)... project cost for NLD was estimated at Rs 1000 crores at least. However, there was one highly critical assumption behind these NLD business plans...
The assumption was that private operators would be able to gain meaningful share of the NLD market, even though BSNL (&MTNL) had more than 80% of all phone connections then. This was to be made possible by a major regulatory move: implementation of Carrier Access Code or Pre-Selection within some months of the NLD market opening up. (See this very detailed article on the NLD opportunity from those times...)
The TRAI did issue the appropriate order to implement the technical changes that would permit customers to choose their NLD (and ILD - international long distance) operator, and not be bound by their access provider's choice. However, for several years, most of the operators refused to implement this order under various pretexts, usually raising technical objections and creating the scare that customers would have to "pay a lot" for it. TRAI tried following up, but soon gave up. A couple of years later (about a year ago), it formally dropped the plans for implementing CAC/Pre-Selection but permitted the use of Calling Cards by long distance operators to access customers directly. A year later, after doing the rounds of the DoT, this has now finally been implemented as an amendment to the NLD and ILD licences.
Why is this at all important?
First, from a customer perspective, NLD and ILD services are still a monopoly of the mobile operator. While it is true that customers have choice of several mobile operators, that is not the same as providing choice for long distance services. In particular, in the absence of Number Portability, no customer is going to give up the phone number to get a better long distance tariff plan. Given that spend on NLD and ILD is a considerable proportion of the total call spend, customers have the right to choose their operator. It is a well-established practice world-over, and it is even a surprise that it took seven years for this to be resolved in India.
Secondly, from a pure contractual perspective, operators acquired NLD and ILD licences and made huge investments on the basis of a regulatory structure that would have enabled them to access the market in a particular manner. By changing the regulation post-facto (or by not implementing it for years), the regulator and the Government have adversely affected the investment decisions. On a stand-alone basis, most of those business plans are nowhere close to realization; of course, growth of captive subscriber base - much more than that anticipated in 2002 - has compensated integrated operators, but policies and investments cannot be based on anticipation of accidents or good luck.
What will be the impact?
For customers, the impact on NLD call rates might not be dramatic since tariffs have fallen quite a bit and are almost on par with local rates. But, competition from calling card operators might give rise to some innovation in bundling and customization, beyond just pure price cuts. In ILD, the impact is likely to be much more. Access providers have typically premium-priced international call rates, even though the wholesale cost of carrying the call is much less. There is a high likelihood of ISD call rates dropping with the advent of calling cards, particularly to competitive destinations like the USA. Business customers can also look forward to interesting packages and bundles in the near future.
So, later, much later, than we had anticipated, and in a partial manner (no CAC, only calling cards), Indian customers will have choice of long distance providers... soon. I hope.
Major investments were planned on building out national fiber backbones and setting up switches and points of interconnects at all district headquarters (as per the roll-out obligations)... project cost for NLD was estimated at Rs 1000 crores at least. However, there was one highly critical assumption behind these NLD business plans...
The assumption was that private operators would be able to gain meaningful share of the NLD market, even though BSNL (&MTNL) had more than 80% of all phone connections then. This was to be made possible by a major regulatory move: implementation of Carrier Access Code or Pre-Selection within some months of the NLD market opening up. (See this very detailed article on the NLD opportunity from those times...)
The TRAI did issue the appropriate order to implement the technical changes that would permit customers to choose their NLD (and ILD - international long distance) operator, and not be bound by their access provider's choice. However, for several years, most of the operators refused to implement this order under various pretexts, usually raising technical objections and creating the scare that customers would have to "pay a lot" for it. TRAI tried following up, but soon gave up. A couple of years later (about a year ago), it formally dropped the plans for implementing CAC/Pre-Selection but permitted the use of Calling Cards by long distance operators to access customers directly. A year later, after doing the rounds of the DoT, this has now finally been implemented as an amendment to the NLD and ILD licences.
Why is this at all important?
First, from a customer perspective, NLD and ILD services are still a monopoly of the mobile operator. While it is true that customers have choice of several mobile operators, that is not the same as providing choice for long distance services. In particular, in the absence of Number Portability, no customer is going to give up the phone number to get a better long distance tariff plan. Given that spend on NLD and ILD is a considerable proportion of the total call spend, customers have the right to choose their operator. It is a well-established practice world-over, and it is even a surprise that it took seven years for this to be resolved in India.
Secondly, from a pure contractual perspective, operators acquired NLD and ILD licences and made huge investments on the basis of a regulatory structure that would have enabled them to access the market in a particular manner. By changing the regulation post-facto (or by not implementing it for years), the regulator and the Government have adversely affected the investment decisions. On a stand-alone basis, most of those business plans are nowhere close to realization; of course, growth of captive subscriber base - much more than that anticipated in 2002 - has compensated integrated operators, but policies and investments cannot be based on anticipation of accidents or good luck.
What will be the impact?
For customers, the impact on NLD call rates might not be dramatic since tariffs have fallen quite a bit and are almost on par with local rates. But, competition from calling card operators might give rise to some innovation in bundling and customization, beyond just pure price cuts. In ILD, the impact is likely to be much more. Access providers have typically premium-priced international call rates, even though the wholesale cost of carrying the call is much less. There is a high likelihood of ISD call rates dropping with the advent of calling cards, particularly to competitive destinations like the USA. Business customers can also look forward to interesting packages and bundles in the near future.
So, later, much later, than we had anticipated, and in a partial manner (no CAC, only calling cards), Indian customers will have choice of long distance providers... soon. I hope.
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