TRAI's New Regulatory Amendments Trigger Heated Discussion

The Indian telecommunications regulator, Telecom Regulatory Authority of India (TRAI), has issued three regulatory amendments which may change the landscape of the telecom industry in the country. Experts and incumbent operators are concerned about TRAI’s expected plan to implement penalizing predatory pricing. While TRAI claims that the purpose of these regulatory amendments are to promote pricing transparency in the telecom industry, Cellular Operators Association of India (COAI) accuses TRAI of being biased in favor of new and smaller mobile network operators, such as Reliance Jio. Moreover, COAI is questioning whether these regulatory amendments are a timely decision, given the turbulent financial situation in telecom industry which has recently seen a multitude of mobile network operator consolidations.

TRAI’s three new regulatory amendments include the following changes: a new definition of significant market power (SMP) and predatory pricing, a reduction in Interconnect Usage Charges (IUC), and a plan on IUC discontinuation by January 2020. Prior to these amendments, the calculation of SMP included metrics included network volumes and switching capacity. Those will be dropped and retain gross revenues and subscribers in the marketplace for the purpose of calculating the 30% threshold. Furthermore, the redefined predatory pricing will be determined upon the basis of average variable cost.

As a result, TRAI’s IUC amendments mandate incumbent mobile operators to switch to next generation networks. More importantly, the new combined definition of SMP and predatory pricing will allow new and small mobile operators to come up with an attractive cut-price plan for customers every other month, whereas current mobile operators, such as Bharti Airtel and Idea Cellular-Vodafone India, will not be able to offer lower tariff rates. At the same time, mobile operators with SMP may lose IUC revenue and have to invest more capital and take on more debt for network expansion and upgrades. The predicted changes may bring about an even more unstable environment in telecom industry in India.

At present the Indian telecom sector has a relatively high amount of debt, consisting of approximately $US 500 million, and experiences hyper competition more than ever. Earlier in February 2018, one mobile network operator (Aircel) filed for bankruptcy protection due to unsustainable debt in the highly competitive and financially-stressed environment. Moreover, moving to next generation networks will require more time and capital, as India has a fundamentally different market with diverse needs, as compared to Japan or South Korea which are are already moving towards 5G.


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