The Hindu Business Line : No business at this rate

An unusual scene of a deserted STD-ISD public call office. The new TRAI regulations on tariff and interconnection usage charge (IUC) could well lead to such a scenario.

THE new regulations on tariff and interconnection usage charge (IUC) issued by the Telecom Regulatory Authority of India (TRAI), while increasing the telephone bills of the landline subscribers, are also likely to have much greater ramifications across the length and breadth of the country. Something that hasn't been given much attention so far.

While a hue and cry has been raised over the new tariffs and rentals of landlines that are to be brought in force from April this year, no one has realised as yet that the STD-ISD public call offices (PCOs) that have become very much a part of every nook and corner in the country over the past two decades may be completely erased from the landscape.

With the TRAI now imposing an IUC of between 30-40 per cent on all outgoing and incoming calls, the PCO business is bound to become unviable in a couple of months. Since PCO booths are only call origination centres and no calls terminate on the PCOs booths, this would mean that they would have to bear an additional cost of between 30-40 per cent from now on.

According to industry sources, the basic service operators (BSOs) like BSNL, MTNL, Tata Teleservices and Bharti Telenet incur an additional cost of 35-40 per cent on the PCO operation as compared to normal fixed lines. These costs include operator margins of approximately 25 per cent, cost of payphone equipment (5 per cent) and higher bad debts (5-7 per cent). Now under the new tariff regime, an additional termination cost of 30 per cent will be added which will result in a net loss of approximately 10 per cent for the BSOs. In such a situation, the PCO business may no longer be viable for them as there is no regulation or route to pass on the additional cost to the consumers or the PCO operator, forcing them to cut down their support for such activities.

To top it, the falling STD and ISD prices (by 60-70 per cent in the past one year) have already had an impact on the revenues of the PCOs. The reason — the long distance traffic volumes have not picked up substantially following the rate-cuts, even as their commission rates continue to remain the same. If the prices go down even further (which is expected in the next couple of months) it would be a total disaster for them.

According to industry sources, at present the commissions being offered by the basic operators (BSNL, MTNL and the private service providers) range between 18 and 25 per cent of the revenues depending on the circles of operation. In other words, for every Rs 100 that is collected from the customer, the PCO owner gets to keep between Rs 18 and Rs 25, with the remaining amount accruing to the service provider.

With high STD and ISD tariff rates, it was a viable business proposition. Even with daily revenue of Rs 500 from STD-ISD calls, the PCO owner could manage to earn over Rs 3,000 per month, apart from additional earnings if any. Following the sharp decline in call rates, the traffic volumes would need to rise by more than double in order to earn the same amount of money. This, however, has not been the case. As per the industry estimates, the average earnings of the PCO owners have dropped by close to 60 per cent in the past one year.

What will be its impact?

The teledensity in India is currently 7 per 100 in urban and semi-urban areas. In other words it means that as much as 93 per cent of the population is dependent on PCOs to make telephone calls.

A significant proportion of PCO users all across the country belong to the middle class, lower-middle class and the least affluent of our society. In the event that this business becomes unviable, these sections of the country will be hard hit and left without their primary means of communication.

In addition to the above, a majority of the 1.5 million PCOs currently operational in the country will become unviable and lose their employment and over 40 lakh people (the operators and their families) will be left without any means of livelihood.

In fact the Department of Telecommunications (DOT) last year stated its intention to increase the PCO density from 1 in 3,500 to 1 in 500 people. However, if the business is unviable, this objective will never be reached. This was planned based on the fact that one PCO provides connectivity to many more people than a landline or mobile phone does. The TRAI order seems to have overlooked this crucial aspect towards increasing teledensity.

It is time the TRAI takes cognisance of the fact that the balancing of social policy concerns is not addressed for the PCO segment. TRAI must take a different view on the PCO business and eliminate the termination charges for the PCO business or look at a way of compensating BSOs for their PCO business.

This is the only way for the PCOs to survive under the new tariff and interconnection regimes and also make telephones available to the common man.

grambabu@thehindu.co.in

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