Bandwidth rates set to nosedive

Trai cuts tariff ceilings by up to 70%.

Domestic bandwidth tariffs are set to fall, paving the way for cheaper broadband, internet and virtual private network (VPN) services.

The Telecom Regulatory Authority of India (Trai) today reduced the ceiling tariffs for various leased-line capacities by up to 70 per cent.

While operators said their revenue would be affected in the short-term, Bharat Sanchar Nigam Ltd, the largest player in the business, said it would be forced to offer leased-line services at a lower cost and might approach the regulator for a review of the order.

According to the Trai order, which will take effect from May 1, the ceiling tariffs have been slashed by 54 per cent for connections of 64 kilobytes per second (kbps), 128 kbps and 256 kbps speed. Now, a 64 kbps connection will cost a maximum of Rs 44,000 a year, while the annual bill for 128 kbps and 256 kbps connections will be Rs 79,000 and Rs 1.36 lakh, respectively.

The ceiling tariff for 2 mega bytes per second (mbps) connections has been reduced by 61 per cent to Rs 8.5 lakh a year, but connections are already available at lower market rates of Rs 8.8 lakh a year.

In the case of 45 mbps and 155 mbps connections, which are used by bulk users like IT service providers, the ceiling tariff has been slashed by around 70 per cent from the present market rates to Rs 62 lakh and Rs 1.65 crore, respectively.

While all service providers, barring Bharat Sanchar Nigam Ltd, welcomed the move, they were unwilling to comment on new tariff plans.

"Trai has removed the bottleneck for offering better broadband connectivity. The industry has been waiting for the move and it can sustain another 50 per cent cut," said Sify Chief Executive R Ramaraj.

An executive with a leading telecom service provider said competition would force players to offer 2 mbps connections, which account for a bulk of the domestic leased circuits, at prices lower than the ceiling tariff. However, he said lower demand for the slower speed categories would keep the prices close to the ceiling tariff.

BSNL executives said the move could result in a 30 per cent revenue loss for the company. "We do not see higher revenue because of larger volume as the market for business customers is already very competitive," said a senior BSNL executive.

"The domestic leased circuit business varies from 0.5-2 per cent of an operator's turnover and their business may be affected in the short-term but it will be more than made up in the medium-term. This will lead to an explosive market expansion as it has happened in the mobile telephony sector," Trai Chairman Pradip Baijal said.

The regulator's move comes close on the heels of the tariff revision for international bandwidth, and is expected to boost broadband penetration. The move will also help heavy bandwidth users reduce their operating costs.

Baijal said Trai had opted for a tariff cut as bandwidth rates had dropped sharply since they were last revised in 1999.

Underlining the need to take further measures to enhance competition in the domestic leased circuit market, the regulator said it would issue another consultation paper on the issue.

Trai also said it would consider making recommendations to the government on providing direct support from the USO Fund to bandwidth providers in remote areas.