Reliance’s Monsoon
Hungama was intended to create a storm. And
it has. Not just amongst enthusiastic
prospective customers but amongst the
company’s competitors who have complained to
TRAI that the tariffs are predatory. They
have also questioned the concepts of bundled
handsets and a “lock-in” period. Are these
complaints valid? Or is Reliance justified
in that the scheme will push up subscriber
volumes and hence lead to wireless growth?
Some industry views….
TRAI has received
complaints about Reliance’s Monsoon Hungama
offer, about its low tariff, three-year
lock-in period, etc. Are these complaints
valid? If so, why?
Manjul Bajpai
The complaints received against Reliance
Infocomm’s recent Monsoon Hungama offer for
mobile phone users across India are valid.
Effectively, the plan brings down entry
charges on handsets to Rs.501. However, the
“club charges” have been driven up to Rs.200
per month for 36 months. Thus, the total
handset charges that would be collected work
out to Rs.7,701. Compare this with the
initial Pioneer Offer scheme and you will
find that Reliance customers paid only about
Rs.6,600 for the handset. The Monsoon
Hungama plan further requires subscriber
continuance for three years. To opt out, the
subscriber has to pay Rs.8,000, Rs.6,000 and
Rs.5,000 in the first, second and third
years respectively as compared with the
Rs.5,000, Rs.3,000, and Rs.2,000 in the
Pioneer offer.
It seems that not only
are customers being enticed into taking up
connections that they think are costing them
less, they are also being tied to the
service provider for a period of three
years. Ingenuity does not justify the
substance of the plan. I may also add that
the Monsoon Hungama offer is not at all
justified while TDSAT’s judgement on the WLL
(M) matter is awaited. This is particularly
so as the offer has been advertised without
informing the prospective subscribers of
this pending litigation.
Aditya Sapru
Based on my understanding from press
reports, the Telecom Regulatory Authority of
India (TRAI) has recently approved the
packages being offered by Reliance Infocomm
and BSNL, which offer CDMA handsets at cheap
prices. We believe that Tata Teleservices
too has introduced or is likely to introduce
a similar package. This is likely to offer a
new connection for just Rs.999.
As is evident, what makes
these packages popular is their lower entry
cost, which, needless to say, has been
contributing to the growth of the wireless
space.
However, the catch with
this kind of package is that the customers
have to remain with the same operator
regardless of whether or not they are happy
with the service. Transfer of ownership of
the handset happens only after paying the
cost of the handset plus the interest
component in installments. If customers want
to cancel the connection, they are forced to
pay a fixed amount depending on the time
period they utilized the service for.
Mohit Saraf
Reliance is trying to do cellphones what
Sabeer Bhatia did to e-mail. Indian
consumers are finally in a position to get a
phone handset and connection – all for Rs.
501. the common man’s phone is finally here.
Right? Wrong- the road to hell is paved with
good intentions and the Monsoon Hungama is a
classic example.
The larger issues in the
Reliance Monsoon Hungama offer have been
totally missed. TRAI recently ruled that it
would not interfere with WLL handset
pricing. The real issue here is the bundling
of services and handsets to provide a form
of cross-subsidy that deserves immediate
recognition in view of its potential for
damage. For the naive, it is pertinent to
note that the handsets are not being offered
free. Though carefully disguised, the
handset prices are being recovered over a
period of three years as a component of the
monthly rental.
The perils of such
intense price competition are real. The
trouble with aggressive price cutting lies
in the looming danger of bankruptcies.
WorldCom is a case in point. In India, a
complicating factor is the fierce rivalry
unfolding between limited mobility service
providers and mobile phone service firms.
Since the market penetration of cellular
subscribers is low in India, limited
mobility providers and mobile phone
operators are both getting an increasing
share of an increasing pie. As the market
saturates, these two industry segments are
likely to cannibalise each other to stay
afloat. Since India is a very
price-sensitive market, WLL operators would
appear to have an upper hand here. The
relatively inferior quality of services
being provided so far by WLL operators
generally has ensured that this shift has
not been dramatic. This is likely to change
as the CDMA technology matures.
The Reliance Monsoon
Hungama offer may be able to survive legal
challenge under the outdated Monopolies and
Restrictive Trade Practices Act, 1969. The
more progressive Competition Act, 2002, may
be able to stall the onward march of such
predatory pricing practices and the unfair
use of a monopolistic position to undercut
competitors. In the long run, both consumer
interest and industry interest converge.
Predatory pricing is anti-competitive since
it facilitates the creation of monopolies,
which hold the consumer to ransom.
Issues of predatory
pricing and unfair price competition in the
telecommunications industry present a clear
and present danger to the future of the
telecom industry in India. What is required
urgently is an appreciation of the nuances
of the issue and its economic implications.
In taking what is clearly a flawed decision,
TRAI has exhibited its stunted perspective
and myopic judgement. There is no silver
lining in this “monsoon” cloud.
Ravinder Singhania
Increasing competition in WLL sector is
forcing oper-ators to provide potential
customers with better offers and incentives.
One such development has been Reliance’s
Monsoon Hungama offer, which provides a
multimedia mobile phone along with a
connection for Rs.501. The offer includes a
monthly payment of Rs.200 for three years.
Though some customers have been complaining
that the stipulation of a monthly payment of
Rs.200 for three years acts as a lock-in
period for subscribers, on review of the
entire scheme the customers would find that
the operator has also provided an exit
scheme wherein an exit charge has to be paid
by the subscriber.
A well-known fact is that
TRAI regulates tariff matters in respect of
telecommunications and related services and
therefore, before an operator releases a new
tariff scheme, it has to receive approval
from TRAI. If at any point of time the
regulator receives complaints with respect
to tariff plans, it is the duty of the
regulator to examine the issue. It appears
that bundling of handsets, or in other words
subsidizing handsets, is part of the tariff
scheme as it would eat up revenues from call
charges and thus such offers should be
approved by TRAI.
Mahesh Uppal
The Reliance Monsoon Hungama package,
which offers a bundles mobile phone for a
price of Rs.501, is in my view quite typical
of the deals offered by mobile operators the
world over. The high price of handsets holds
back many ordinary customers from
subscribing to the service. By spreading the
cost of the handset over the subscription
period or recovering this cost through
higher call charges or rentals, the operator
and customer both can benefit.
The issue on hand is what
TRAI should do if it thinks that the price
is too low and designed to gain competitive
advantage over other players. The answer, to
some extent, depends on the players that are
purportedly being hurt.
In the case of WLL(M)
players claiming to be hurt by Reliance, my
view is that TRAI needs to do nothing. TRAI
was wrong when it intervened earlier and
right now when it has decided not to.
Reliance does not have any particular
advantage in the marketplace compared to
other WLL (M) players. It can do nothing
which similar operators are prevented from
doing.
GSM players have a
different complaint against not only
Reliance, but all WLL(M) players. They have
argued that WLL(M) services are cheap
because the government charges them lower
licence fees to offer similar services. This
and related licensing issues are sub judice
at the time of writing. It is difficult to
say how this will be dealt with by TDSAT and
eventually TRAI. The latter’s own approach
to WLL(M) and GSM has been quite
schizophrenic. It treats them similarly one
moment and differently the next. See, for
example, the recent IUC regulations.
But an equally important
issue is the business practices of services
providers. Many customers have complained
about the fine print in contracts and
billing which often disguises the true price
of services as well as imposes excessive
penalties when someone wishes to move to a
different plan or service provider. TRAI has
enough powers to deal with this and to
ensure that the customer is not hoodwinked
into buying any product. |
