How will telecoms handle call drop penalty

Phone bill
Call drop penalty imposed by the Telecom Regulatory Authority of India (TRAI) will have a major impact on Indian telecom network operators.

Some of the telecom analyst reports indicate that telecoms will be forced to pay up nearly 50 percent of its ARPU towards penalty if mobile subscribers face call drops.

TRAI imposed additional penalty on erring telecoms at a time when COAI claimed that Indian telecoms invested nearly $8 billion or Rs 50,000 crore on infrastructure and spectrum in 2014-15.

Telecoms have ensured improvement in network coverage and capacity enhancement with almost 70,000 additional cell towers being installed by the operators in the last 6 months to boost connectivity.

COAI views on call drop

# compensation is not correct approach
# will not resolve the underlying problems
# telecoms should be allowed to develop infrastructure
# offer adequate and affordable spectrum,
# educating citizens on EMF safety norms
# remove local government delays to cell towers

COAI says the right approach to the issue would be to address the lack of cell sites to boost the network capacities and improve the quality of the services.

Wire agency IANS has shared several reports from asset management companies.

Telecom analysts say the TRAI recommendation ignores vital issues like technical hurdles in assigning reasons for call drop, poor spectrum policy and obstacles in roll out of telecom towers, among other things.

Call drop poses revenue challenges

# penalty can be Rs 90 per month per user
# TRAI fails to assess reasons for call drops
# Poor phones or battery can result into call drops
#  who will pay penalty for call drops at terminating network
# who will take responsibility for poor spectrum allocation?
# telecoms may delay re-farming of 900 MHz spectrum band for data

Rs 1 penalty per call drop, limited to a cap of three such occurrences per day, may translate to Rs 90 per month for a subscriber against a monthly ARPU of Rs 180. This means, telecoms need to cough up 50 percent of their earnings towards penalty if the mobile user faces call drop.

“There are likely to be technical hurdles in implementation. Based on our discussions with telecoms, it isn’t easy to determine the cause of call drops. Call drop can be due to limitations in both the originating network and terminating network,” said a Nomura report.

Actions like removing phone batteries or stepping into low coverage areas can also be the causes for call drop.

“Anyone designing telecom networks will know that ensuring nil call drops is near impossible for commercial telecom operators. There are several external factors beyond the operators’ control that could influence call drop,” said Credit Suisse.

Credit Suisse added that the new rules mandate that only originating network is to compensate the originating subscriber. It is not clear how the situation is handled if the call drop occurs due to a problem with the terminating network.

Bank of America Merill Lynch said it expects a hit of up to 5 percent in the pre-tax profits for listed majors Bharti Airtel and Idea Cellular.

It considers this regulation as hard to implement in the current form and expect telecoms to contest this ruling. However, the worst case impact could be 4-5 percent of EBITDA for Bharti Airtel / Idea Cellular.

Telecoms may pay more than they earn in a call as a bulk of the prepaid customers are in the per second billing plans. Under the license requirement, a telecom is not supposed to give 100 percent network coverage which implies that call drops will happen. The provision to compensate if call drop happens due to calling party’s network and not receiving party’s network is an issue.

A Morgan Stanley report questioned how TRAI can execute the call drop penalty. The unanswered question is how will the regulator practically implement testing methodology for call drop, as it could imply as much as 50 percent of average revenue per user is at risk for the most unreliable network operators.

Deutsche Bank Market Research said telecom service providers currently need to achieve less than 2 percent call drops and that tests by the regulators own reports show that companies are adhering to this across most of their operating markets.

The TRAI regulation on call drop is likely to introduce another layer of complexity to the operators’ billing systems. Besides the regulator has not specified any mechanism to audit the claims which are bound to arise in future, according to Deutsche Bank Market Research.

TRAI said it examined the representations of telecom operators, who maintained that some issues beyond their control, like poor spectrum allocation and difficulties in setting up towers, were also contributing to call drops.

HSBC Global Research said its analysis suggests that potential penalties may have an adverse impact on Bharti Airtel’s revenues by 4 percent and earnings before interest, taxes, depreciation and amortization by 7 percent. Telecoms have the option to challenge new regulations in court.

HSBC Global Research added that though coverage issues for 4G entrants don’t get resolved till the time they have access to 850 spectrum band, new regulations on call drops may help 4G players in the launch phase by managing subscriber expectations relatively better.

Capex (capital expenditure) for competition goes up and puts them in a situation to focus more on voice, at a time when data is the growing category. The regulations may delay the plans of telecoms to re-farm 900 MHz spectrum band for data.

Cellular Operators Association of India (COAI) said its first preference is to engage in a dialogue with the regulator to get clarifications over call drop norms, keeping in mind there is time till December 31. COAI is getting ready to seek legal route to solve the call drop issue.

Baburajan K
[email protected]

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