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No Penalty: Supreme Court breather for operators against TRAI’s order on call drops

June 01, 2016
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In a dramatic turn of events, the Supreme Court recently struck down the Telecom Regulatory Authority of India’s (TRAI) regulation that mandates operators to compensate subscribers for dropped calls. The apex court has overturned a Delhi High Court judgment, which upheld the TRAI order asking operators to compensate customers by paying them Re 1 for every dropped call, subject to a maximum of three disrupted calls in a day. Terming the regulation as “manifestly arbitrary”, “unreasonable” and “non-transparent”, the Supreme Court bench comprising Justices Kurian Joseph and R.F. Nariman gave a major breather to telecom operators, who have been at loggerheads with TRAI regarding the reasons behind the disrupted and inconsistent services.

While TRAI has maintained that the operators shied away from making adequate investments in telecom infrastructure, which led to this situation, the operators claim that policy and regulatory roadblocks have prevented them from delivering consistent quality services. Consequently, the past few months have seen a battle of conviction with neither party ready to step down from its stance.

Interestingly, the concerns of neither TRAI nor the operators are unfounded. TRAI, on its part, has to safeguard the interests of 1 billion telecom users and the compensation mechanism was devised after taking the plight of subscribers and the inconvenience caused to them into consideration. For operators, however, this would have translated into an annual outgo of

Rs 100 billion (if 10 per cent of consumers were to claim compensation) to Rs 540 billion (if 50 per cent of consumers did so). To expect such a huge outgo from an industry that is already reeling under huge debt and constrained profitability seems unreasonable. The telecom industry currently has a cumulative debt of over Rs 3,500 billion on its books. “We are glad that the Supreme Court has given attention to our arguments to arrive at its verdict,” says Rajan Mathews, director general, Cellular Operators Association of India (COAI). TRAI, however, points out that the industry currently earns a daily revenue of Rs 2.5 billion.

While the apex court has put an end to the dispute between the regulator and operators, at least for the time being, it gives no clear roadmap to resolve the underlying issue of improving the call drop situation in the country. The question of how to protect customers against call drops remains unanswered even as operators are celebrating their victory over TRAI.

Call drops are a reality

Telecom subscribers in India undoubtedly face poor quality of service. This is true in even select pockets of the highest revenue grossing metro circles like Delhi and Mumbai. In on-the-spot call drop tests conducted by TRAI in both these circles, it was observed that the service quality of only one telecom service provider was within the prescribed 2 per cent benchmark. (TRAI allows the dropping of 2 per cent of calls made through any telecom operator on account of technical issues.) In a particular case, a telecom service provider in the Delhi circle had a call drop rate of nearly 17 per cent. One can only imagine the state of service delivery in remote areas of Category C circles like the Northeast and Himachal Pradesh, which currently do not feature as high revenue earning circles for operators.

As per TRAI data, in the first quarter of 2015, users made about 257.87 billion outgoing calls and reported 2 billion cases of call drops, indicating that about 1 per cent of all the calls made during the quarter were disrupted.

In such a situation, it becomes critical to evaluate the level of telecom infrastructure development in the country and highlight the deterrents that have led to the call drop menace. TRAI has argued that operator investments in network infrastructure have not been in line with the growth in network usage. For instance, during 2013-14, network investment (other than that on radio spectrum) grew by 4.6 per cent. In contrast, minutes of usage grew by 6.8 per cent. Further, data from PricewaterhouseCoopers (PwC) shows that mobile subscribers grew by 66 per cent between 2010 and 2015, while mobile towers increased by only 33 per cent during this period.

Soon after the Supreme Court’s judgment, Ravi Shankar Prasad, the minister for communications and IT, remarked that operators must heed his call for improving service quality. “While I acknowledge mobile operators for bringing connectivity to every nook and corner of the country, it is equally their responsibility to give good, satisfactory service. They must identify the gaps and reinforce them through investments.”

Situation on the ground

In their petition to the high court, the operators had stated that TRAI’s mandate did not consider the infrastructure issues faced by the industry. The telecom industry faces a severe shortage of spectrum. It is widely known that operator networks in India are overloaded as they carry more voice and data per unit capacity than their counterparts in countries such as Singapore and China. Also, in the past six years, incumbents such as Bharti Airtel and Vodafone India have incurred high costs on acquiring spectrum and spectrum rebidding upon licence expiry, leaving limited funds for other capital expenditure.

Also, erecting new towers has become a tedious task with several rounds of clearances required. Ashok Sud, secretary general, Association of Unified Telecom Service Providers of India (AUSPI), has stated that operators still do not have approvals to put up towers in congested places like Delhi, where even existing towers face the possibility of being sealed. The growing concerns about the potential health hazards from tower sites has led to the shutting down of several sites, resulting in gaps in operator networks.

The poor quality of service can also be attributed to operators’ low investments in deploying fibre for telecom backhaul. In India, only 20 per cent of the towers are backhauled on fibre as compared to an average of nearly 80 per cent in countries such as the US, China and Korea. China and the US have installed nearly 1 billion km and 600 million km of fibre respectively, while India has deployed only 70-80 million km, including private and government networks. Furthermore, India adds only 15 million km of fibre every year, against 150 million km by China. Looking at the current rate of 3G/4G growth, India needs to deploy at least 50 million km of fibre per year to improve network capacity. This seems like a Herculean task given that right of way (RoW) is a huge challenge. Exorbitant RoW charges and tedious RoW clearance processes often make deployments unviable for operators.

Fixing the issue

The problem is obviously much more complicated. The industry thrives on 1 billion subscribers using telecom services 24x7. While networks cannot be 100 per cent free of call drops, operators cannot shrug off their responsibility towards customers by claiming to be in a poor financial state due to which they are unable to make adequate investments in infrastructure. COAI data shows that Indian operators have added more than 200,000 cell sites since January 1, 2015.  Whether this push in cell site roll-out was encouraged by the operators’ desire to enhance service quality or was the result of the fear of a potential penalty is debatable.

Also, one cannot overlook the fact that operators do make profits on call drops by charging consumers for calls that they are unable to complete. For instance, if a customer is billed on a per-minute basis and the call drops  after six seconds, the call is charged for the whole minute.

Compensating consumers for call drops with credit is a common practice in various international markets. However, for TRAI and the government, it is uncharted territory. For instance, how can one distinguish between a genuine call drop and the dropping of a call because the phone’s battery died.

In such a scenario, it becomes important to evaluate whether a regulation-led compensation framework/incentive mechanism needs to be established or if a proactive approach/self-regulation by operators is the way forward to ensure quality of service. India’s e-commerce industry is a leading example of high quality service delivery and customer refunds, without any regulatory intervention. TRAI had also suggested that operators compensate call drops with an equal number of free calls, citing Telenor India’s example, which is currently following this practice. Recently, Bharti Airtel announced a tightening of the benchmark for call drops faced by its subscribers. Compared with the TRAI prescribed 2 per cent cap on call drops, Airtel has set itself a benchmark of a maximum of 1.5 per cent call drops. In a company statement Airtel noted that “it would contribute towards rural education Rs 100,000 for every 0.01 per cent increase in call drop rate beyond 1.5 per cent every month in each circle of operation, subject to a maximum of Rs 1 billion per annum”.

The way forward

The call drop issue requires a more sustainable approach than TRAI merely putting a penalty framework in place. Operators, on their part, can enjoy the temporary relief offered by the Supreme Court verdict, but much needs to be done to improve the quality of service. Prasad has clearly stated that operators need to do more, and the government will continue to insist that they fulfil this obligation. As COAI’s Mathews notes, “The industry must move forward and fix the real issues, like have more cell towers and affordable spectrum, and work with the local authorities to get the infrastructure in place.” AUSPI’s Sud further states, “Wherever there is any kind of shortcoming, our members will try their hardest to do whatever they can to cover it.”

Going forward, the government needs to collaborate with the operators in order to address the problems faced by the 1 billion users in the country. Making dedicated investments in infrastructure roll-out, resolving spectrum-related issues, and closing policy gaps will play a key role in addressing consumer grievances.

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