The TRAI's consultation paper on telecom pricing marked "months long" efforts. TRAI chairman S S Sodhi patted the backroom boys for coming up with the tariff paper. Harsha Vardhana Singh, economic adviser to TRAI, is widely seen as the prime mover behind the report. His comments:
The report says the effect of the changes in tariff will be revenue-neutral to DoT. Can you explain the assumptions behind this?
The implementation schedule which we are proposing _ subject to consultations _ is that the new cap on rentals and local calls come in place whenever the implementation period begins. The decrease in long-distance call charges are substantial. In the beginning of the implementation period, two-thirds of the total decrease will be effected and then one-sixth and one-sixth in the next two years.
But long-distance charges _ STD and ISD _ constitute about 60 per cent of DoT's revenue. If these charges are reduced sharply, what is the impact?
It will be incorrect to focus on only one component because we are now talking about total revenue base. Rental charges, which are about 20 per cent of the total revenue, are increasing. Some local call charges have gone up, some have come down. So, the effect on the revenues will be net these factors. (For domestic long distance calls), we have assumed an elasticity of demand of 0.5 and 0.8 for international calls.
Some people expect it to be higher, almost one. If you take it to be one, the revenues will increase. But I have not taken it as one as there could be capacity constraints somewhere, resulting in truncated elasticity. There won't be much change in revenue. It will not fall; there might be an increase. There will not any change in the revenue base in the first year. Second year, when the call charges are falling, the share of rentals and local calls will be more.
But what about interconnection and access charge share? Have you taken it into account?
Interconnection payments have to go up. Right now, the operators don't get very much by way of it.
While computing the tariffs, what is the "reasonable" rate of return on equity you have taken?
It is between 25 and 30 per cent. We are also assuming a 10-year depreciation period.
