Over the weekend, TRAI introduced a consultation paper with a view of regulating long distance calling card access charges. If the objectives/proposals in the paper are implemented, this could lead to greater competition in the highly profitable international long distance segment.
Background of the STD/ISD Market in India
While a number of new standalone STD/ISD operators have emerged in recent years, without any direct access to the end-customer, these STD/ISD operators have to rely on the mobile operators (who own and bill all the end subscribers). Calling cards were allowed in 2008 as a simple way for the independent STD/ISD operators to access the retail subscribers. The expectation was that all mobile operators will open up their subscriber bases to specialist long distance providers, in return for a mutually agreed compensation (‘access charge’) for doing so.
Why TRAI Wants to regulate the Market ?
In the consultation paper, TRAI suspects that such mutual commercial agreements have not been entered into, or if entered, are in terms that are steeply in favour of the mobile operators. TRAI alleges that the large integrated telecom operators (leading players like Airtel, Idea, Vodafone, RCOM, Tata fall into this category) are asking for such high access charges from the independent STD/ISD operators, that the business case for the latter breaks down.
If TRAI eventually regulates calling card access charges, leading to growth of calling cards in the country, this could lead to greater competition and downward pressure on long distance call tariffs. TRAI’s current view appears to be that the fair compensation for mobile operators to allow access to their subscriber bases should be Rs0.20/min (as against the current market rate of Rs5/min).
In our view, the risk is not so much on the national long distance call segment, as the segment is already very competitive with tariffs more or less aligned with the local call tariffs leaving little scope for undercutting by calling card providers. However, the international long distance segment could be a risk.