New tariffs to hit DoT and MTNL, VSNL to gain

NetScribes/Ganesh Ramamoorthy

The new tariff structure issued by the Telecom Regulatory Authority of India (TRAI) on Monday is expected to take its toll on the revenues of the Department of Telecommunications (DoT). The second round of tariff restructuring was announced with a view to balance the tariff structure and cut cross-subsidies between local and long distance call charges

According to analysts, despite an anticipated growth in the number of corporate subscribers on account of the new tariff cuts, DoT will still suffer losses. Corporate subscribers contribute a major chunk of DoT's revenues.

"The impact of the new tariff order won't be as severe as last year, but DoT will still lose out substantially," says Sandeep Shenoy, a senior analyst at Asit C Mehta Brokerage. "Revenues may go down by up to Rs 5-6 billion due to the new tariff," he added.

In the new tariff order, TRAI has cut call charges for domestic and international long distance calls. The cuts range between 16 and 23 per cent for domestic long distance (DLD) calls and between 16 and 20 per cent for international long distance calls. The rates will be effective from October 1, 2000 through March 31, 2002.

MTNL's revenues are not likely to be hit very much since a major portion of its revenues comes from local calls. "MTNL will also be affected, but it would be just a 6-7 per cent fall in revenues, while VSNL will gain substantially from the new tariffs," he adds.

Following the implementation of the May 1999 tariff order, the revenues of the Department of Telecom Operations (DTO) went down by about Rs 20 billion due to a 55 per cent cut in international call tariffs and a 45 per cent cut in STD rates.

DoT's revenues largely come from intra-circle traffic. But according to the agreement between VSNL and DoT, VSNL is paid a fixed amount of Rs 10 per minute for an ISD call routed through it. "So VSNL stands to gain with the growth in business volumes," says the analyst.

"The latest tariff cut is just the second phase in a series of cuts aimed at bringing Indian telephone tariffs in line with the global prices. So we can expect a minimum of three more cuts amounting to a total 35-40 per cent in the near future," the analyst says.

At present, a call from India to the US costs about Rs 61.20 per minute against Rs 22.50 per minute for a call from the US to India. TRAI's plan is to bring down the tariffs to the same levels as in the US and other countries. Effective October 1, a call from India to the US would cost about Rs 49.20, which is 19.60 per cent lower than the current rates.

However, the purpose of the tariff reduction, which was to reduce the imbalance in the international traffic, has still not been achieved. "Last year, when ISD charges to the US were reduced by 24 per cent, the US cut its ISD call charges by about 40 per cent. So there was no impact on the incoming to outgoing traffic between US and India. The same will happen this year too, which means that the traffic imbalance will stay," the analyst says. India today generates one minute of traffic volume for every 13 minutes of traffic generated by the US.

In the first phase of tariff rebalancing undertaken last year, the regulator had increased the local call charges as well as rentals in a bid to cut down cross-subsidies that made long distance callers bear the burden.

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