The telecom regulator defied its own conventional wisdom to enable Reliance Jio to offer over 200 days of promotional free services.After all this, what is the outcome of the TRAI’s action for the industry?
Though it is not clear when Reliance Jiowill take to break even, as it has offered fresh round of free services for additional 90 day. What is certain is that the industry is suffering irreversible long term damage.Telecom sector has a debt of Rs 4.42 lakh crore, while its revenue is only about Rs 2.11 lakh crore. EBITDA of the industry is Rs 50,000 crore.
How has this happened?
As per TRAI Act 1997, the TRAI is established to “…. protect the interests of theservice providers and consumer of the telecom sector, to promote and ensure orderly growth of the telecom sector.”
TRAI was established in February, 1997 through an Act of Parliament.
There are various factors that have led to poor financial health of the industry such as low revenue, high taxes, huge investments on Spectrum &infrastructure, hyper competition (now M&A taking place) etc.
However, TRAI’s recent decisions have only added to the problems of the industry. In his zeal to promote interests of a new telecom operator, TRAI did not hesitate in going against the basic spirit of the TRAI Act.
This had adverse impact on national exchequer. When the former telecom secretary J. S. Deepak pointed it out, he was shunted out of the ministry.
Controversial decisions of TRAI favouring Reliance Jio
There are number of decisions of TRAI that may indicate strong bias towards one company at the cost of the whole industry, national exchequer, and the consumers in long run. The latest being its decision to allow Reliance Jio to offer free promotional tariff for more than 200 days so that it can acquire customers.
TRAI issued a letter on 19th June, 2002, to all the operators and the Industry associations saying that promotional offers would be valid only for 90 days. “Service Operators are therefore advised to restrict the validity of promotional packages and the benefits offered to customers under such packages on offer to a maximum of 90 days from the date of launch,” as per letter titled “Restriction on validity period of promotional packages.”
All promotional tariffs are guided by this letter.
Reliance Jio launched services on September 5, 2016 by offering free services to all customers until December under “Welcome Offer”. When this offer ended, it came out with another free offer called “Happy New Year” offer under which subscribers got free voice and data services. However, free data download was limited to 1GB per day. It is as good as unlimited data download.
This means that Jio offered promotional plans for about 200 days, much more than the 90-day limit. Incumbent operators opposed it.
Whenever a new pan-India operator offers free services, whole industry is affected. Incumbent operators are forced to reduce tariff to retain customers. It also chokes their networks as people tend to call subscribers in their networks. This reduces quality of services.
That is why the incumbent operators went to TRAI against Jio’s ‘Happy New Year Plan’ offer citing 2002 letter, which was being followed as a guideline for last 15 years.
TRAI, however, couldn’t see that free offer for more than 200 days would harm industry, national exchequer and would not in any manner ‘promote orderly growth of the industry.’ Instead TRAI took opinion of attorney general (AG) to support its decision.
It is clear the regulator didn’t follow the spirit of the TRAI Act.
This decision also led to a new litigation, which was least required at this stage.
Interestingly, TRAI didn’t take AG’s opinion when it recommendeda penalty of Rs 3,000 crore on three incumbent operators in a tussle between Reliance Jio and existing players.
Reliance Jio claimed that incumbent operators didn’t give 12,000 Points of Interconnection (POI) that it needed, existing players said that they had given enough POIs. In a telecom network, POIs allow calls to transfer from one network to another.
TRAI was in so much hurry of recommending penalty that it based its decision on only one-week traffic data. Its QOS norms require that TRAI has to observe trends for at least 30 days to know whether service quality if good or bad.
Now the question is why TRAI didn’t take AG’s opinion when it was recommending penalty?
There are number of such decisions that may indicate blatant favours to one operator questioning its credibility.
Impact of TRAI’s decisions on investor confidence
One of the reasons of the success of telecom liberalisation in India was that it was by and large properly regulated. Independent and fair regulation is one of the primary criteria for investment in a sector.
However, the perception is that the present regulator is not transparent. No investor is interested in a market where one can always get surprise with irrational decision and knee jerk reactions.
Financial Health of Telecom Sector
From the data given below, it is clear the industry is facing a tough time. Though there are factors like low revenue, high taxes, huge investments on Spectrum & infrastructure, and hyper competition (now M&A taking place), recent decisions of TRAI have only added to the problem.
Impact on Consumers
One can’t invoke consumer interest to defending TRAI’s decision of allowing Reliance Jio to offer free promotional offer of 200 days.
Consumers will suffer most if the financial health of the industry is not good. A situation will emerge when only a few players will remain and they will have power to form cartel and hike prices.
Impact on Government Revenue
TRAI decisions have adverse impact on the government revenues as all the operators reduced their tariff. Telecom minister Manoj Sinha has told the Parliament that the licence fee collected by the government fell to Rs 3,450.1 crore in the quarter ended December 31, from Rs 3,584.04 crore in July-¬September and Rs 3,975.7 crore in April-¬June.
Revenue from spectrum usage charges dropped to Rs 1,553.2 crore in October¬-December from Rs 1,820.03 crore in July¬-September and Rs 1,995.2 crore in April-June.
When the former telecom secretary J. S. Deepak pointed it out, he was shunted out of the ministry.
It is clear the telecom sector is in bad financial health and it needs a strong regulatory support. If corrective measures are not taken immediately, it will have long term irreversible damage to the industry.
(This article has appeared in www.thewire.in)
(This is the first of a two-part article)