Strange will be the telecom world in emerging markets.
Free incoming calls are the norm in many counties. Ever thought it can get even better? Operator paying the mobile users for incoming? Where on earth such crazy things happen?
Answer: In India.
Virgin Mobile pays 10 paise (about 0.25 US cents) for every incoming call minute a user gets. (In other words, boss calling to lecture you for ten minutes, will make you richer by one Rupee)
Where is the catch? Has Virgin Mobile CEO gone insane? Or does he mint coins?
Department of Telecommunication (DoT) India thinks Virgin Mobile can do that because its actual call termination costs are less than what it receives as termination charges– 30 paise per minute. Simple maths. If the costs are less than 20 paise, why not return the extra 10 to customers?
For those who are not familiar with the Calling Party Pay (CPP) scheme in India, termination charges are paid by an operator from whose network a call originates to an operator on whose network the call terminates. For instance, if a Reliance Communications (R-Com) customer calls a Bharti Airtel customer, R-Com will have to pay Bharti for the call. At present, the charges have been fixed at 30 paise per minute.
However, this has raised certain eyebrows.
Government is not happy because the innovative babus can call their little ones using office phone so that the child collects enough credit to do all his outgoings. No kidding.
Telecommunication Regulatory Authority of India (TRAI) is certainly not happy because it thinks the other operators are making ‘undue’ profits. Can termination costs be low just for one operator? If not, how much others are making?
DoT wants TRAI to modify cost structures, but this has not happened yet. So for some more time we can assume the clever young men (like the ones in the ad) taking advantage of gullible babus.
10 Comments
Chanuka Wattegama
Sorry, if you cannot see the interesting Virgin mobile ad.
Here it is:
Rohan Samarajiva
This is not an emerging-economy phenomenon. I first heard of it in Switzerland in 2000, where excessive fixed-to-mobile termination charges led the mobile operators there to run similar ads. I don’t think it lasted very long because termination charges were brought down. I played a small role in that, chairing the ITU’s fixed-mobile interconnection workshop that raised the salience of the issue: http://www.itu.int/osg/csd/ni/fmi/workshop/index.html
KM
1. Are termination rates set by regulator or negotiated by operators in india?
2. what is ‘due’ and ‘undue’ profit?
3. lets assume that bureaubrat calls son for entire working day, 8 hours, how much can she generate?
4. can one expect marketing gimmicks from a MVNO?
5. how ‘inovative’ is a practice that has been around for 7 years at least?
LIRNEasia should know better than the media to sensationalize.
KM
oh ya, how does trai modify the cost structure of an operator? :-)
Chanuka Wattegama
KM,
I guess the point you try to make is the market itself will take care of this ‘marketing gimmick’.
Still I think it is enough reason for the regulator to be concerned. As we all know there are no perfect markets in the world. If there are perfect markets we don’t need the regulators in the first place.
Agreed, the receivers will also not accumulate significant credits, as you rightly point out, but the perception (see the ad) per se can still increase the outgoing calls at public sector departments. So it is surely a concern for the government (which TRAI and DoT are part of). Think that might be the reason they react.
We highlighted the story to discuss the externalities and surely not to praise Virgin Mobile. But of course, I was once a journalist and old habits die hard.
Rohan Samarajiva
Interconnection is not an area where markets work. The operator who receives the call (the receiving party network) has a form of monopoly on the ability to terminate the call. Therefore, absent regulatory intervention, they will either refuse interconnection (Bangladesh TTB), or charge excessively high termination rates (Nepal Telecom Corp). Of course, after the players have gotten big enough, they can negotiate as bilateral monopolies and set prices, but these will not be set by the market, even in that instance.
The termination rates were set by TRAI. They are too high. They will be lowered. This is a temporary phenomenon that will disappear when that happens. I do not think Chanuka was exaggerating.
Nirmali Sivapragasam
One wonders what kind of an effect such a change in the tariff structure could have on the use of “missed calls” as a cost-saving strategy among telecom users.
Findings from the Teleuse@BOP2 (http://lirneasia.net/projects/2006-07/bop-teleuse/) study revealed that over 30% of all telecom owners at the BOP made and/or received missed calls.
If operators begin paying their customers for the incoming calls they receive, this creates a greater incentive for users to receive calls than they are to make them. As such, one such way that users could communicate to the other party that they wish to speak to them (and directly or indirectly, would like them to call back) at no cost, is through missed calls which can be used to communicate a variety a messages, one such being “Call me back”.
The extent of increase in the use of missed calls, however, would depend on several factors such as the relative benefit a user enjoys from received calls, as opposed to the cost incurred to make one, etc. Furthermore, such a phenomenon could arguably create a disincentive for operators to pay customers for incoming calls received.
At the end of the day, I guess the potential long-term impact such a tariff scheme could have on a user’s demand for missed calls ultimately depends on how responsive the regulator (in this case, TRAI) is to the change in tariff structure, as well as the extent to which an SMP operator is allowed to exercise its power on the rates at which termination charges are set at.
Rohan Samarajiva
A missed call is not a call received, so will not attract a payment.
This scheme is a short term exploitation of a delay in regulation catching up with decreased costs of terminating calls. As soon as TRAI lowers termination to around 10-20 paisa, Virgin will find another stunt.
Divaina
Do operators charge for the SMS we get when a call is missed?
Rahat Azim
Banglalink one of the mobile operator in Bangladesh offered 20% bonus talk time on incoming calls from other operator since November 2007. Bonus talk time offered end of each month.
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