Will penalty end the problem of call drops?

A daily ceiling of Rs 3 translates into maximum annual penalty of Rs 1,095 for every subscriber, says Bhupesh Bhandari.

Very soon, your mobile service operator could be paying you money for calls that fail midway. 

The Telecom Regulatory Authority of India, or Trai, has said that operators will have to pay Re 1 for every dropped call, subject to a ceiling of Rs 3 a day, from January 1.

Clearly, Trai feels the operators have done little to end the problem of dropped calls, and this penalty is one way to get them to act.

Many are convinced that the operators don't want to expand their network because any investment will eat into their profits, and that's why the penalty makes sense.

Dropped calls are a complex matter and are a result of several factors. The issue is, will the penalty end the problem?

The simplistic answer would be, if the investment required to beef up the networks is lower than the projected penalty, the operators will settle for the first option: they'll buy more spectrum, order fresh equipment, put up more towers and everything would be fine.

A daily ceiling of Rs 3 translates into maximum annual penalty of Rs 1,095 for every subscriber. Multiply that with 900 million (the number of mobile phone connections in the country) and you arrive at the figure of almost Rs 1 lakh crore.

Operators, theoretically speaking, could get exposed to this liability in 2016! It could maul their balance sheets. 

The operators have decided to contest it tooth and nail - they could even go to the courts. Actually, the operators have several grounds to challenge it.

The licence agreement allows for two per cent of calls to be dropped. But the penalty doesn't take that into account: the operators will be penalised for the first dropped call.

The agreement also requires operators to provide 90 per cent coverage at the district headquarters level and 30 per cent at the block headquarters level, which creates some space for call drops. The penalty is incongruous with it.

Besides, it opens the system to being gamed by unscrupulous subscribers.

What stops people from claiming that a disconnected call was a dropped call?

Or, a subscriber with two phones from calling from one number to the other and disconnecting after a few seconds?

You may think that the money (up to Rs 3 a day) is too small for a subscriber to indulge in such unsavoury behaviour. But that's not a correct assessment.

Through the penalty, a subscriber can earn up to Rs 93 a month, which is almost three quarters of the industry's ARPU (average revenue per user) of Rs 125-130 a month. 

The other issue is assigning the payment responsibility. If it happens within a network, there is no problem - the operator pays.

But when the call is between two different networks, there could be a dispute.

The industry has come round the view that it is the network from which the call emanates that has to pay.

But it is quite possible that the call may have dropped due to congestion in the other network. Who will determine that?

Once the penalty is in place, you will find the operators locked in several such disputes with subscribers: was it a dropped call or a disconnected call (there is no way to tell), did it drop because of some snag in the other network, have the subscribers colluded to defraud them?

This will be such a waste of managerial bandwidth.

Worse, it will create a perennial conflict zone between the operators and subscribers, which is by no stretch of imagination healthy for the industry.

It is quite possible that the operators might try to recover the penalty from subscribers through higher tariffs, but, given the large number of operators in each circle, is it possible to do that without some sort of collusion? 

That's not all. Won't the operators be allowed to deduct the penalty from their adjusted gross revenue?

Or else, they will end up paying spectrum user charge (of up to eight per cent) and licence fees (five per cent) on the penalty! This could lead to a tricky situation.

I am not aware of such mandatory penalty anywhere else in the world. In some countries, operators on their own offer some compensation in case of service irritants like call drops but that is different from the regulator stepping in.

Clearly, this will not make the problem of dropped calls go away. Maybe the operators have under-invested in their networks.

We have to look for the reasons for that and then address them. One is that spectrum is expensive, which leaves little room for capital expenditure of other kinds (stations and towers).

The second issue is that spectrum is being auctioned every year - and the situation is unlikely to improve over the next few years.

It takes several months for service in a new spectrum to stabilise. Dropped calls are bound to happen in that period, penalty or no penalty. 

The shares of all operators listed on the stock market - Bharti Airtel, Idea Cellular and Reliance Communications - have risen since Trai announced the penalty.

Investors obviously see little chance of it coming into effect and punching a hole in the pockets of the operators.