TRAI paper: Jio, Airtel, Vodafone favour floor on data tariffs; CCI against it

In the letter Amitabh Kant said; "We would like to strongly emphasise that floor prices are the need of the hour to enable the continuation of a multiplicity of firms that is critical for healthy competition. Given the heavy debt burden being faced by the sector and the recent fall in prices to unsustainable levels, there is no option available but to set floor prices."

In all, 51 comments have come in from COAI (Cellulars Operators Authority of India), telecom operators including Reliance Jio, Bharti Airtel, Vodafone Idea, BSNL and MTNL and even players like Tata Communication, Nokia and Ericssion. COAI and all telecom operators including state-run BSNL and MTNL have said that a floor price will be the most important reform for companies to be able to survive at least for the next couple of years.

COAI has recommended that that floor price be fixed only for an interim period of two years. It says that after two years, the regulator can review the tariff regime.

COAI said that even if voice tariffs remain the same, there should be a floor price for data tariffs. It has proposed that the floor price must have a subscription or connectivity charge irrespective of use even for voice. It says the floor price should factor the minimum subscription charge to be on the network, the value of unlimited voice and a floor price for data. The tricky part is having a floor price for bundled offers that include data and voice services. For this COAI said operators must be made to ascribe a value to all services, in a bundled plan for arriving at the floor price for data services. So effectively the floor price will be the total of minimum subscription charge + floor price on data and a charge for bundled offers.

COAI also recommended that telecom service providers should not be allowed to issue bundled plans with unlimited free off-net calls along with data. Beyond the bundled off-net minutes (voice minutes), the rate charged per minute cannot be lower than the Interconnect Usage (IUC) rate that is set by the government.

Telecom operators have submitted estimates of the stress in the sector and the tariffs that could help ease the pressure.

Reliance Jio did not recommend an exact amount for floor price but says that fixing a floor price for data should be done based on the actual realization of revenue from data services. It said the current revenue realized from data services is Rs 9-12 per GB. This should increase to Rs 20 per GB in 2-3 steps over the 6-9 months.

It also emphasizes that the floor price should be applicable to all bundled tariff plans to ensure the sanctity of the data floor.

Bharti Airtel has said that the floor price should be fixed by TRAI on cost-based methodology to ensure that operators are able to make a 15 percent Return On Capital Employed (RoCE). It has suggested three models for fixing prices — fixed price model, telescopic price model and current price mode.

The fixed price will give the best return on capital employed at 15 percent whereas the telescopic and current price mode will give 10 percent and 8 percent return respectively.

As per the first plan, Airtel has proposed a Rs 30/ GB floor price on data and a Rs 75 charge for minimum subscription. Each GB increase will be charged Rs 30. It also recommended a Rs 60-charge for unlimited voice in bundled plans. So this sets the floor price suggested by Bharti Airtel for 1 GB voice and data bundled plan at Rs 165 for 28 days.

Vodafone Idea has a similar view. It says that the floor tariffs must cover the actual costs and provide a reasonable rate of return on capital. It recommends a Rs 35/ GB floor charge for data tariffs and a minimum subscription charge of Rs 75 but has not specified a charge for bundled tariffs. So for now, the effective floor tariff suggested by them for 1GB data bundled offers is Rs 110. In addition, it says that the actual trend of traffic and ROCE can be revisited after observing the impact of floor price for one year.

State-run, BSNL and MTNL believe that a floor price should be set for data, voice and SMS's and it should be calculated based on the average industry cost which should be marked up by 25 percent.

In its recommendations, Niti Aayog has said that it believes a floor price is not needed and the justification for the setting of a minimum charge for tariffs in itself is questionable. It believes that floor price will reallocate consumer surplus to the incumbent players (Bharti Airtel, Vodafone Idea).

"Even then if a tariff floor is considered imperative on account of financial stress in the sector, this should be a short term intervention and should be limited to higher-end data plans and must be reviewed with proper analysis to understand the impact of data subscription and consumption within 3 months.”

The Competition Commission Of India (CCI) is entirely against a floor price. It says that forbearance on tariff fixation is important to keep competition alive in the sector. It believes the present regime gives sufficient freedom for telecom providers to offer multiple tariffs and that setting of a floor price may be highly detrimental to the usage of services. It says that the present situation of ailing telecom operators warrants policy intervention other than tariff fixation. Price control systems, it believes should be resorted to only if free-market systems fail to continue effectively and price control should be a remedy of last resort.

Update: The earlier copy mentioned NITI Aayog as opposing the telcos' proposal for a floor price. NITI has reversed its initial stance and in its final recommendations, supported the idea of a floor price