"Technology and competition among telecom players are driving the prices down." D.P.S. Seth, CMD, Bharat Sanchar Nigam Ltd

A few years ago, when he wasn't a telecom czar, Sunil Bharti Mittal was frantically trying to make a local call in Delhi's bustling Chandni Chowk. To his dismay, he found that most shopkeepers had locked their phones and would not allow customers to make calls lest someone made an STD call, leaving them saddled with a huge bill. Mittal gave up after knocking on the doors of more than 20 shops.

BUSINESS THE FALL OF 2001 ... STD calls up to 200 km made local; rates cut up to 75%. Average mobile-to-mobile STD call rates down by 60%; from maximum Rs 24 a minute to about Rs 9 per minute.* Average mobile call rates cut by 50% from Rs 4 to Rs 2 a minute. Cost of dial-up Internet service falls from Rs 15 to Rs 7 an hour. Peak-time STD call rates down by 60%.** Prices of mobile handsets fall by up to 50%. * From January 26, 2002 ** From January 14, 2002 ... WHAT'S COMING IN 2002 Calls through Internet to be permitted from April 1. Overseas call rates to fall; cost of offpeak-time call to the US to come down from Rs 42 to Rs 23 a minute. STD rates to fall further; even up to about Rs 5 a minute at peak time. Internet services to become faster: from about 28 to up to 128 kbps. Cellular tariffs to fall as fourth operators enter the fray. Wireless-in-local-loop services to be launched. Basic telephone rental to go up marginally.

On December 18, 2001, Mittal-now chairman of the Rs 2,000 crore Bharti Group-took a decision that could soon eliminate the need to put locks on telephones. He cut a deal with top cellular operators of the country and announced that more than 50 lakh cellular subscribers in the country would be able to call from one mobile phone to another at half the STD rate. The maximum peak-time rate would be Rs 12 per minute. The war had begun.

Ten days later, Bharat Sanchar Nigam Ltd (BSNL), the erstwhile Department of Telecommunications which controls the Rs 7,000-crore domestic long-distance market, announced a 63 per cent cut in the maximum peak rate of STD calls bringing them down from Rs 24 to Rs 9 a minute. Mittal, who will be offering long-distance telephone services across the country by March, responded with a matching offer. "People will now be more liberal in making STD calls and all those locks should open," he says.

Words are ringing across the country. Ram Jaane, a taxi driver in Mumbai, who keeps a mobile phone to enable his wannabe models and TV star clients in posh Lokhandwala to reach him anytime, says he will now call up his family in Allahabad every week instead of once a fortnight. "I will now be able to speak a little longer. And no more staying awake till 11 p.m. and keeping them awake till that hour as well," he adds. The off-peak rate, which will be half the peak rate, will start from 8 p.m. (instead of 11 p.m.) and will remain till 9 a.m. (instead of 6 a.m.).

Even though the Indian consumer has in the past five years seen sharp cuts in cellular phone tariffs, from Rs 16 per minute to less than Rs 2 per minute, domestic and international long-distance calls, worth Rs 7,000 crore per year, had remained a public-sector monopoly, their rates among the highest in the world. These rates were artificially kept high to subsidise local calls (Rs 1.20 for three minutes) and keep monthly rentals low. Apparently, for the authorities, increasing the teledensity was a bigger concern than making long-distance calls cheaper.

Thanks to the twin forces of competition and technology, that's set to change. At least four companies-Bharti, Reliance, Tatas and Videsh Sanchar Nigam Ltd (VSNL)-will start domestic long-distance telephone services this year, forcing existing players to cut tariff.

"Peak long-distance call rates could fall to around Rs 5 per minute within a year." Sunil mittal, Chairman, Bharti Group

"Rates will drop further, though the fall may not be as sharp as this. It could be a few rupees more," says Mittal. He claims if he can get a 20 per cent share of the long-distance market with a revenue of Rs 2,000 crore, the cost of a call anywhere in India could be as low as Rs 4-5 a minute. Mittal plans to grab 10 per cent of the market in the first year.

Many players share his optimism. Says Rajeev Chandrasekhar, chairman of BPL Innovision Group: "Rates of intra-circle calls (within 200 km) dropped after cellular operators sharply reduced tariffs. The Government must allow cellular operators to interconnect with other cellular operators across circles. If the Government removes hurdles, a call from Thiruvananthapuram to Shimla would cost less than Rs 6 per minute."

BSNL knows this only too well. On January 26 last year, BSNL had sharply reduced STD rates for distances up to 200 km. Charges for calls in the 50-100 km range were cut by about 80 per cent while the 100-200 km range saw a 50 per cent cut.

BUSINESS THE LONG AND SHORT OF STD RATE CUT   Peak rates in Rs Off-peak rates in Rs Up to 200 km EXISTING RATES PROPOSED RATES 4.80 1.20 2.40 1.20 200-500 km EXISTING RATES PROPOSED RATES 11.60 3.00 4.80 2.40 500-1000 km EXISTING RATES PROPOSED RATES 17.56 9.00 4.50 4.50 More than 1000 km EXISTING RATES PROPOSED RATES 24.00 9.00 6.00 4.50

BSNL is able to offer such huge cuts because its cost per call is extremely low. Industry sources peg it at Rs 2 per minute. "Advances in technology and intense competition will keep driving the prices down," says D.P.S. Seth, chairman and managing director of the public-sector telecom giant. He isn't willing to disclose the real cost of STD calls. Reason: it keeps changing with technology. If telecom users didn't benefit from technological changes in the past, it is because competition wasn't breathing down on BSNL.

Seth is hoping that the sharp drop in STD rates will drive up the number of calls which will offset the estimated Rs 3,000 crore drop in revenue caused by the latest rate cut. It is planning an advertising campaign and innovative tariff packaging to encourage people to make more STD calls. But any spurt in STD usage will also benefit private players who will grab a share of the incremental growth. Seth says a marginal increase in telephone rentals would be desirable to compensate for the loss. Clearly, if there was no competition, BSNL may have waited till April to cut STD rates.

Or maybe not. From April 1, the Government will allow telephone calls through the Internet. BSNL could lose up to 20 per cent of its STD traffic to Net telephony. International calls will take a bigger hit. "We wanted to be prepared for Internet telephony well in time," says Seth.

The double bonanza for consumers is that from April 1, international call rates will also fall sharply. A significant component of an international call cost is the hefty charge a consumer pays for the call to be carried from his phone to the point from where it gets hooked on to the international network. With domestic long-distance rates coming down sharply, this component of the overseas call will also come down by more than half. Mittal has said he would slash international long-distance tariff by half. VSNL would have no choice but to follow suit. The amount paid to the international operator which completes the overseas leg of the call is expected to fall from 34 cents (Rs 16) to 23 cents (Rs 11) per minute. This means that a call to the US would cost about Rs 25 per minute at off-peak hours as against Rs 42 now.

In the telecom war, the key to success is now in the hands of the consumer. Only there won't be any locks. So speak your heart out.

-with Rohit Saran