Thursday, November 26, 2009


The new 1 paisa per second call has a lot more…

The entire telecom sector is going through a huge structural shift . From a point in time wherein a user had to pay obscene tariff s even for incoming calls to a time where the same end user is getting paid for every time he makes a call – the entire industry has observed a tectonic structural shift . No wonder, this is an outcome of the intense competition that the industry has observed over the past few years. In their pursuit to retain their existing customers and attract new ones, each and every new entrant is offering such schemes which defy basic economics.

It is needless to state that competition is always healthy as it makes the consumer feel like a king! But then what is happening to the telecom industry is something which is neither helping the industry nor the consumer. On one hand, competition is putting sustainability to question and on the other, it's creating confusion in the end users' mind. Today there are more than 2,000 tariff plans across the country. Everything from Re 1 for 3 minutes, to 50 paisa per STD call - every type of tariff plan is on offer. Continuing the legacy of the price war, the telecom service providers have recently introduced the much awaited per-second calling rates. Following Tata DoCoMo’s tariff plan of 1 paisa per second, many other players too have jumped into the bandwagon and are offering similar plans to their customers! Older players such as Idea and Reliance have also introduced competitive tariff s with 1 paisa-persecond plans. Such has been the impact of this plan that as per reports, a huge proportion of operating margins have disappeared from the balance sheets of the existing large players, as they used to generate sizeable revenue from the unrendered services. Even the recent HSBC Global Research, in a report, had described that the ‘per-second plan’ could hurt the sector’s revenue by 10-15 per cent.

But then, pushed to a corner, on account of ensuing tariff war, the service providers are finding ways and means to cover up their margins. So, though on the face of it the tariff s may look extremely competitive but the underlying ‘terms and conditions’ are killer in themselves. For example, BSNL users need to recharge their phone with Rs 45 STV (Special Tariff Voucher, valid for a month) to make a local call (including any network) at Rs 0.01 for one second. In case of TATA DoCoMo – for STD calls, the first 27,000 seconds in a month are charged at one paisa, beyond which the rate becomes two paisa per second for that month (this needs to be accompanied with a special recharge voucher). Similarly, Vodafone’s and Airtel’s one paisa per second call offer is meant for calling within the local network only. Few networks call for special recharge to activate the offer – generally with a one month validity. Some service providers have limited these facilities to first few hours and then revert the tariff to the normal scheme. And most of the service providers do not allow this tariff plan for calls made outside their own circle or network!

All in all, India does have the lowest call tariff in the world but then our teledensity is still very poor. A lower tariff with a high density is understandable as then the economies help sustain business and they are then equipped for better services.

These kind of structural shift s are leaving the end users high and dry with respect to intense information asymmetry. And here comes the role of the regulator (TRAI). It has to definitely ensure that the fine prints are adequately highlighted, so that an over-enthusiastic (and rural and semi literate audience) customer does not get overboard and ends up paying more than what he thinks he is paying.


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