Aiming to control the eroding balance sheets, several telecom companies have suggested to the sector regulator that a floor price be fixed for both data and voice services….writes Aparajita Gupta
But is a floor feasible? Experts remain divided even as industry strongly bats for it.
Industry stakeholders have suggested a floor price to stop any player from offering tariff below that level. This issue largely rose after Reliance Jio came in with a free offer for voice and data, thus disrupting the industry’s tariff regimes.
However, the concept of floor price may be in contradiction to the ‘forbearance’ clause of tariff regulation which requires that it should not intervene on tariff issues, which should be left to market forces or competition.
If the players switch to a floor price, then with every new tariff offer they would need to seek Telecom Regulatory Authority of India’s (TRAI) permission.
“Having floor price does contradict the forbearance clause, but that doesn’t stop the authorities to consider some measures that are good for the industry in the long term. Measures like this will require careful consultation with industry stakeholders to gauge the feasibility of implementation,” Rishi Tejpal, Principal Research Analyst for Telecom Business Strategy at Gartner, said.
TRAI Chairman R.S. Sharma had earlier said that operators have discussed the idea of creating a floor price, below which no operator could offer any data and voice service.
“Ultimately, floor price will depend on multiple variants… the technology, utilisation of the network, volumes and many more. It is a complex issue. How do you operationalise this principle … that was another issue. We have agreed with the operator that we will have more deliberations on this issue and probably the tariff principle consultation will see some of those things,” he added.
Rajan S. Mathews, Director General, Cellular Operators’ Association of India (COAI), said that “a floor price will ensure there is no “anti- competitive” behaviour through inappropriate cross subsidies or predatory pricing. It will provide operators a measure of stability to attract and make needed investments in the sector. We believe selling below cost is inappropriate and not sustainable in the long run and hence will ultimately work towards hurting the consumer.”
The COAI represents GSM operators in Indian telecom industry.
Mahesh Uppal, Director, telecom consultancy firm ComFirst, said: “The idea of price floors is retrograde and lowers price flexibility in the market place. Price floors will hurt consumers.”
He said floors were in contradiction with forbearance. But, “regardless of whether price floors make sense, TRAI is not bound by forbearance. It has virtually complete powers when it comes to tariffs,” he added.
Uppal said floor price will raise end-user prices and provide only temporary relief to telecom companies.
Mathews says that floor prices exist in many regulatory regimes worldwide. “In fact, in many jurisdictions there are both floor and ceiling prices within which retail prices are allowed to be set. In a free market economy, price is an important indicator of economic activity and competitiveness,” he said.
“In the long term customers will gain through enhanced services and quality as operators use their financial viability to improve services and make the investments needed by technological advancements and customer demand,” says Mathews.
But will floor price help turn around the bleeding balance sheets of the companies?
“Operators have already gone through that phase of pricing war and its corresponding consequences and they certainly would not want that thing again. So measures like this will help to streamline the pricing regime,” Tejpal added.