© Ravi Visvesvaraya Prasad, 1999. Please read the Copyright Notice. Reproduction strictly prohibited and will be prosecuted without any warning.
long-suffering users of cellular phones, who hoped their bills would be
greatly reduced by implementation of the Calling Party Pays (CPP) tariff
regime announced by the Telecom Regulatory Authority of India (TRAI) in March
1999, have been dealt another rude blow by the judiciary. Prolonged turf and
legal battles between the statutory regulator and the Department of
Telecommunications have greatly harmed subscribers of mobile telephones.
1 November, TRAI suffered another humiliation at the hands of the judiciary
when a Division Bench of the Supreme Court consisting of Justice Mr B. N.
Kirpal and Justice Mr S. Rajendra Babu dismissed its special leave petition
challenging the order of the High Court of Delhi which had stayed TRAI from
implementing CPP. Even before hearing TRAI’s counsel, Mr Ashok Desai, the
bench observed that it was very strange on the part of TRAI to come before the
Supreme Court at this preliminary stage, and that Mr Desai should instead make
his arguments in favour of CPP at the next hearing of the High Court of Delhi
on 16 November.
28 October, following a writ petition filed by Mahanagar Telephone Nigam Ltd.
(MTNL) as well as public interest litigation filed by a hitherto unknown
organization called Telecom Watchdog, a Division Bench of the High Court of
Delhi consisting of Chief Justice S. N. Variava and Justice S. K. Mahajan
granted an ad interim stay restraining TRAI from implementing CPP, stating :
“We find this a matter in which MTNL and DoT are likely to lose large
revenue, prima facie…CPP, in its present form, appears to be a case of
hostile discrimination on account of the revenue loss which MTNL and DoT would
16 November, MTNL filed a revision petition in the High Court of Delhi stating
that it had not been heard adequately by TRAI and alleged that TRAI had no
jurisdiction to regulate revenue sharing arrangements between operators. The
Cellular Operators Association of India (COAI) also filed an intervention
application, offering to place facts about CPP before the Court. The next
hearing, on 30 November, is eagerly awaited not only by long-suffering
subscribers, but also by foreign and Indian investors in the telecom sector.
At present, cellular subscribers in India pay both to make calls as well as to receive them. This practice of paying to receive calls originated in North America two decades ago due to technical limitations then prevailing in analog mobile telephony in which telephone exchanges treated cellular operators as end-users rather than as co-carrier networks. Even though the introduction of digital exchanges in the mid-1980s removed this technological restriction, the billing practice was continued in USA as well as in several developing countries, including India, where it was justified on the grounds that radio spectrum utilized by cellular phones was a scarce resource, and that cellular phone users came from the rich strata of society.
a CPP regime, which is prevalent all over Europe, most of Asia, and now most
of Latin America, cellular subscribers do not pay anything at all to receive
calls. However, landline callers pay their wireline operator several times
higher to call a mobile phone than they would to call another landline phone
– a multiple of about 7 times in UK, 10 in Norway, 13.5 in South Africa, and
about 30 times in Greece.
fixedline operator then shares the revenue so generated with the cellular
operator for providing the service of completing the call to the cellular
recipient, who does not pay his cellular operator for airtime for receiving
calls. The quantum of this Mobile Termination Charge (MTC), paid by the
originating fixedline operator to the receiving mobile operator, is a frequent
source of disputes. Regulatory authorities often have to intervene since the
cellular operator is generally in a much weaker negotiating position compared
to the fixedline operator. The MTC varies from an average of 70 % in UK to 82
% in South Africa, 85 % in Norway, 91 % in Greece and 94 % in Colombia. In
scores of instances in Europe and Asia, over 75 per cent of the total revenues
of cellular operators come from MTC and only about 20 to 40 per cent of their
total revenues come from outgoing calls made by their cellular subscribers.
operators the world over are in favour of CPP because it leads to lower bills
for their subscribers, much greater utilization of their installed networks,
and greatly increases both the number of cellular subscribers as well as the
time that they talk. In fact, several European cellular operators give their
subscribers a rebate of about five to ten pounds sterling if they receive more
than 400 to 500 minutes of incoming calls per month.
cellular subscribers would benefit greatly from a CPP regime since they would
not have to pay anything to receive calls. Currently, over 80 % of Indian
cellular subscribers refuse to accept incoming calls except when absolutely
necessary. They instead use the customer line identification feature to call
back the calling party from a landline phone. Average talk times in India
range from 90 to 120 minutes per month.
USA, a survey conducted by The Yankee Group in June 1999 found that incoming
calls represented less than 20 per cent of all mobile calls, which was far
lower than the 50-60 per cent prevailing under the CPP regime in Europe.
Moreover, 30 per cent of US cellular subscribers never kept their phone on to
receive incoming calls, and 55 per cent kept their phone on for less than two
hours per day. 25 per cent did not even know their cellular number, since they
used their phones only for outgoing calls in emergencies. An earlier survey by
Bell Communications Research found that
inbound plus outbound traffic for US CPP subscribers averaged 184 minutes per
month compared to 91 when the mobile recipient paid. Moreover, under CPP,
inbound calls averaged 42.9 minutes per month compared to 25.5 when the mobile
Yankee Group’s survey also found that whereas US cellular tariffs were among
the highest in the world -- averaging 40 cents a minute in New York (world’s
highest), 36 in Boston, 33 in Los Angeles and 32 in Chicago – they were far
lower in countries having CPP regimes – only 8 cents per minute in Toronto,
12 in Seoul, 15 in Tel Aviv, 20 in Copenhagen and 20 in Hong Kong. The
differences in tariffs between Toronto and Boston are especially striking
because of their similar cost-of-living and cost-of-business in all other
assertion in its public interest litigation of the hitherto unknown Telecom
Watchdog, which is rumored in industry circles to be a front for the
Department of Telecommunications, that in CPP, the landline caller, usually a
poorer person, is subsidizing a well-off mobile subscriber is totally
untenable. Except in certain rare instances, the landline caller knows at the
outset that he is calling a mobile number, due to the special 98 prefix in
Indian ten-digit cellular numbers. (This is not the case in USA where cellular
numbers and landline numbers share the same area codes and numbering schemes).
He should therefore be prepared to pay extra to reach a person wherever the
latter may be. Moreover, the recipient will accept the call which he would
probably not do under the current tariff scheme. Further, in the proposed CPP
regime in India, the premium to be paid to call a mobile number is very much
lower than in other countries – twice for a one-minute call, thrice for a
two-minute call, and four times for a three-minute call.
CPP would make cellular phones much more affordable, the subscriber base will
grow greatly. This will have a multiplier effect since handset prices would
also come down due to economies of scale. It is because of this positive
feedback spiral of CPP and falling handset prices that a little over one-third
of all European adults (and over sixty percent of all Scandinavian adults) own
a cellular phone, and talk on an average for 450 minutes per month. Cellular
penetration and usage in Israel and Lebanon are even higher, with talk times
averaging 600 minutes per month in Israel and 850 in Lebanon.
CPP greatly lowers costs to subscribers, even countries which did not
initially have it are now moving towards implementing it, especially in Latin
America and USA. Governments also prefer CPP because it leads to more
efficient utilization of scarce spectrum and installed networks.
line with the global trend towards CPP, on 9 March 1999 TRAI proposed a switch
over to CPP, to be implemented from 1 May 1999. Since DoT and MTNL’s
networks and software were not ready, this date was pushed back to 1 August
and then 1 November 1999. TRAI came out with its consultation paper No. 99/4
on 31 August, held a public hearing on 7 September, and published its order on
17 September 1999 – which has now been stayed by the High Court of Delhi.
All the while Indian subscribers have had to put up with bills that are four
times higher than they should be.
would be instructive for the High Court of Delhi and TRAI to examine the legal
and regulatory arguments of the switch over to CPP from other tariff schemes
in other countries. As in India, the implementation of CPP was delayed in
Mexico when the largest landline operator, Telefonos de Mexico, sought a court
injunction to prevent its implementation. But in February 1999 the court ruled
against it, giving the go-ahead to Cofetel, Mexico's regulatory agency, to
implement CPP. Cofetel said the number of mobile subscribers, 3.3 million at
the end of 1998, could thereby double by the end of 1999.
Europe and much of Asia have had CPP from the very outset, the first country
in Latin America to switch over to CPP was Venezuela in 1991, followed by
Brazil and Colombia in 1994, Uruguay in 1995, Bolivia and Peru in 1996,
Ecuador, Paraguay and Argentina in 1997, Chile in February 1999 and finally
Mexico in April 1999.
to Dan Pegg, senior vice president for public affairs at Leap Wireless
International, San Diego, the introduction of CPP in Peru, Colombia, Venezuela
and Uruguay doubled, and in some cases tripled, the customer base in less than
a year, with talk times increasing by more than 50 percent in each country.
clearest example of the impact of CPP is Argentina, which switched over in
April 1997. The number of cellular subscribers there grew from 667,000 at the
end of 1996 to 2 million by the end of 1997. The Telecommunications Minister
of Chile, Mr Claudio Hohmann, predicted in February 1999 that the introduction
of CPP would increase the number of cellular subscribers by at least 250
percent in 1999, from 800,000 to 2 million, and that there would be more
cellular than fixedline users by 2000.
10 June 1999, the Federal Communications Commission (FCC) of USA asked
operators to provide CPP as an optional service to their subscribers. FCC
chairman William Kennard, an enthusiastic proponent for the conversion to CPP,
said then : “CPP would allow families on tight budgets and students to make
greater use of wireless phones…CPP could also hasten the day when wireless
carriers become significant competition to land-line local monopoly
17 September 1999, the Personal Communications Industry Association (PCIA) of
USA filed its comments with FCC, strongly supporting CPP. PCIA’s President
Jay Kitchen said : "CPP will make wireless communications more affordable
for millions of wireless users. As a result, wireless services will become an
even more viable alternative to old-fashioned wireline telephony."
also promoted CPP as a more efficient use of spectrum because it would
increase wireless network usage : “Implemented
properly, CPP has the potential to enhance competition between landline and
wireless telephony carriers in local markets, increase demand for wireless
telephony service, give wireless customers incentives to make and receive
calls, increase consumer choices with respect to telecommunications services,
and reduce the cost of mobile service to customers.”
cellular operators are overwhelmingly in favour of CPP, fixedline operators
are ambivalent about it since they would have to upgrade their exchanges and
network software, install expensive new billing software, take on the
administrative tasks of collecting payments from subscribers and disbursing
MTC payments to cellular operators, and assume the risk of bad debts which
until now was borne by cellular operators. According to Carl Glaeser, vice
president at AG Communication Systems : "CPP increases wireless network
traffic very effectively, but wireline carriers have been unwilling to invest
much in it because of the cost of offering it through local exchange carriers
and lack of control over customer support and billing,"
though wireline operators in USA agree that subscribers would benefit under
CPP, they are claiming that the high costs involved in switchover to CPP would
not be recovered by them through increased traffic alone, and are demanding
that cellular operators should compensate them, either through an upfront
lumpsum payment or through a larger share of revenues.
has estimated the cost of upgrading its exchanges and network software,
installing new billing software, taking on the administrative tasks of
collecting dues from subscribers and disbursing MTC payments, and assuming the
risk of bad debts to be of the order of Rs 2,000 million. While this figure
needs closer scrutiny, it appears to this author to be of the correct order of
magnitude, based on extrapolation from Latin America.
claim that it should be compensated through a higher share of revenues is
justifiable in view of American experiences. BellSouth Cellular Corporation
found that it did not recover the costs of switching over when it implemented
CPP on a limited basis in Honolulu earlier this year. Mr Rick Rappe, Chief
Executive of WirelessNorth of Minnesota said : “I am skeptical of the value
of CPP being greater than the hassles of implementing it.” SBC
Communications Inc has stated that it would definitely not implement CPP and
would also not act as a billing agent for other providers offering CPP.
AirTouch Communications and Sprint PCS have stated that while they would
provide CPP to customers who specifically requested it, they would not invest
heavily in providing CPP or even in advertising CPP as an option.
is noteworthy that MTNL has not opposed CPP, partly because it plans to be a
cellular operator itself, but has only asked for a higher percentage of
revenues. At TRAI’s meeting on 7 September, cellular operators, citing
examples from Europe, wanted MTC to be more than 85 per cent whereas MTNL and
DoT argued that MTC should not exceed 40 per cent. The Association of Basic
Telecom Operators (ABTO) is also of the opinion that MTC should not exceed 50
initially fixed MTC at 85 per cent, then revised it to Rs. 0.60 per pulse
after hearing the arguments of cellular operators and MTNL / DoT, and finally
notified the MTC at Rs. 0.80 per pulse (or metered call unit), irrespective of
the source of the call.
now argues that implementation of an MTC of Rs. 0.80 per pulse would result in
a loss to it of Rs three thousand million per year and a loss to MTNL of Rs
two thousand million each year. On the other hand, COAI claims that MTNL’s
revenues would increase by at least Rs seven hundred million per year at an
MTC of Rs 0.80 per pulse, due to greatly increased traffic.
estimation and forecasting models used by the opposing parties would need to
be examined very carefully to find out whose forecast is more likely to be
correct. COAI’s model has assumed that the number of fixed-to-mobile calls
will increase by at least 50 per cent in the first year, the number of
cellular subscribers will increase by at least 20 per cent, and that the
duration of such calls will increase from the present average of 54 seconds to
COAI’s assumptions seem reasonable, in view of the experience of Latin
America, it appears to this author that if the average duration of
fixed-to-mobile calls is less than three to four minutes, then MTNL will incur
a loss at the MTC of Rs 0.80 specified by TRAI. An average duration of over
five minutes for fixed-to-mobile calls seems extremely unlikely since at
present the average duration of a fixed-to-fixed call in MTNL is a little less
than three minutes. Therefore, it appears, to this author at least, that MTNL
will incur a loss unless the MTC is changed by a significant amount to be in
MTNL, DoT, COAI, and ABTO should also carefully examine two studies which were
commissioned by PCIA and submitted by it to FCC on 17 September 1999. The
report by Strategis Group has five case studies examining the impact of CPP in
Argentina, Chile, Germany, Mexico and UK. The second study by Detecon, the
consultancy arm of Deutsche Telekom, examines the technical and operational
issues regarding implementation of CPP, focusing on billing and collection.
The Detecon study examines several scenarios : (a) the mobile subscriber pays
airtime charges for receiving calls (the current situation in India and USA);
(b) the calling party pays and the fixed carrier bills and collects (the
proposed CPP regime in India); (c) the calling party pays the recipient’s
mobile operator directly for the call; and (d) the calling party pays directly
to the telecom clearinghouse which settles payments between operators. The
international telecom consultancy firm, Dataquest, has also come out with a
forecast of the impact of CPP in USA. It predicts that consumers will benefit
by at least 30 per cent and that the profits of mobile operators would
increase by at least 15 per cent by 2004.
an early judgement in favour of CPP would greatly benefit cellular subscribers
as well as cellular operators, and instill confidence among investors in the
telecom sector, it seems unlikely since it was this very judicial bench which
had stayed the operation of CPP in the first place, and which has issued
several judgements against TRAI in recent months.
the amended petitions filed by MTNL and DoT in the High Court of Delhi on
November 16, they alleged that TRAI “has no powers and / or jurisdiction to
issue or to make regulations to regulate arrangement amongst service providers
of sharing their revenues…” It is quite possible that the High Court of
Delhi might uphold this view since its Division Bench had earlier upheld the
judgement of Justice Ms Usha Mehra that it was not mandatory for the
government to seek TRAI’s recommendations before introducing new service
providers and that TRAI had no jurisdiction over the government in its role as
How Indian Consumers Will Benefit from CPP
Impact of CPP on MTNL’s Revenues
In addition, MTNL will incur fixed costs for upgrading its software and billing systems
In November 1999, Ravi Visvesvaraya Prasad delivered several speeches to industry associations in India on the Calling Party Pays Tariff Regime. This is a summary of the many extempore speeches delivered by him in Nov. 1999.
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