Offering quality telecom service at lower cost

M. Rokonuzzaman | Published: September 01, 2018 21:05:34 | Updated: September 05, 2018 21:23:12

Bangladesh Telecommunication Regulatory Commission (BTRC) has recently brought changes in setting the floor price of call rates of mobile operators. Such change has raised concerns among customers. There used to be two floors in mobile call rate previously: 1. Tk 0.25 per minute for on-net call, and 2. Tk 0.6 per minute for off-net call. On-net is about calls that are being made between subscribers of the same operator. Off-net call, on the other hand, is about making call by subscribers of one operator to the subscribers of other operators. Recently, BTRC has abolished these floors with one: Tk .45 per minute, irrespective of whether these are on-net, or off-net calls. Such change has created an impression among subscribers that the average monthly cost of availing telecom service will go up. Meanwhile, the regulator is making a claim that such a change will reduce subscribers' expense and also improve competition scenario of the industry. Often a question that arises in mind is: was there any necessity of bringing such a change?

The regulator is facing the challenge of addressing two major policy objectives: 1. Creating possibilities for profitable competition for smaller operators, and 2. Lowering the monthly bill for customers. The adoption of this new regulatory measure will likely affect both of these two objectives. Here are few areas, which will likely to be affected by this measure.

PREDATORY PRICING: In a competitive market, often an operator offers the service at a price, which is far lower than the cost of production. The basic purpose is to allure customers, and force competitors, particularly the smaller ones, to incur a loss. This competition tactic is known as predatory pricing. Such a strategy increases the customer base and lowers the cost of production (due to the scale effect) for the practicing operator. On the other hand, the competitors lose customers, and also suffer from higher per unit cost in serving remaining customers, as the per unit capex component of cost keeps rising with the eroding customer base. The change in the floor of the rate from Tk 0.25 to uniform rate will reduce the scope of this predatory pricing. It's to be noted that the practice of predatory pricing has significantly changed the competition scenario in many countries, including India. Bangladesh's telecom industry also experienced aggressive predatory pricing in the past.

INTEROPERATOR CALLING BARRIER: The difference between on-net and off-net call rates contributes to the inter-operator barrier, affecting the calling behaviour. Due to lower on-net call rate, customers often prefer to make on-net calls as opposed to calling the numbers belonging to other operators. To take the advantage of this situation, operators also design some packages encouraging on-net calls. Moreover, users often carry multiple subscriber identification modules (SIMs) to avail such offerings. Due to this effect, often the operator having the largest customer base benefits more than the smaller ones, as their subscribers will likely enjoy low call rate from high on-net call frequency. A significant difference between on-net and off-net call rates provides incentives to subscribers to switch from smaller operators to larger ones. With the introduction of mobile number portability (MNP), such switching barrier will reduce further risking further monopolisation.

INFORMATION ASYMMETRY: Although on-net call rate is quite low, customers in reality pay a far higher price on an average. According to media reports, the operators charge Tk 0.35 to Tk 0.40 per minute on an average for on-net calls and Tk 0.91 to Tk 1.05 for off-net calls. Actual monthly bills for customers depend on a number of factors including the distribution of on-net and off-net calls, calling behaviour and the extent at which different promotional packages are being availed by them.

COST FOR CUSTOMERS: Due to the rise of the floor from Tk 0.25 to Tk 0.45, there is possibility that customers will pay more than before. But it will vary from one customer segment to another-depending on the calling pattern and frequency. There is a possibility that customers residing at the bottom of the pyramid may end up paying more than before, as they often make good use of predatory pricing practices. In particular, some of the subscribers who are frequent buyers of promotional packages are likely to end up in paying more than before. For example, as reported in the media, the price for a popular 10 minutes of talk time package has gone as much as 40 per cent, from TK 3.85 to Tk 5.70. But many of the customers will not experience such a jump in their bills, as often they are not often buyers of these packages. But low-income customer groups, often students, frequently buy such packages. As a result, such change has the risk to hurt certain segments of customers more than others.

REVENUE FOR OPERATORS: Apparently, operators will generate greater revenue than before, as the floor has gone up and the scope of predatory pricing has come down. But, the reality will depend on a number of factors, including calling behaviours of different segments of customers, size of customer base, and the practice of predatory pricing. With the rise of the floor in terms of on-net price, the market leader will likely benefit more than smaller operators.

The regulator needs to deal with making a trade-off between the long-term competitive functioning of the market and the short-term customers' bills for telephone services. But such a trade-off should increase possibilities of profitable competition scope for smaller operators and reduce the cost of service for customers. Notably, the cost of telecom service residing at the bottom of the income pyramid should be seriously taken into consideration in taking any regulatory measures. BTRC should continuously do research on assessing the implications and adjusting the limit and also explore other price limiting options, so progress is increasingly made in major policy objectives of the market-led delivery of cost-effective telecom services. The regulator should share analytical findings in an objective and also in an understandable manner, particularly with the customers, about the way the sustainable progress is being made by capitalising the competition force in offering increasingly higher quality telecom service at lower cost.

M. Rokonuzzaman, Ph.D, is Academic, Researcher and Activist: Technology, Innovation and Policy.


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