January 2003 should have been a month for mobile phone operators to uncork the bubbly to celebrate hitting the 10 million subscriber mark. But celebrations were over even before they could begin. For the past few days, grim-faced cellular chieftains of India have been posing every second day in a desperate attempt to save their businesses.

The cellular industry is at war with its regulator, accusing it of bias and alleging that it is openly siding with fixed-line players who have been allowed to offer limited-mobile services (also called WLL-M: mobility through wireless in local loop) through fixed-line licences. Their balance sheets dyed in red, the latest battle is perhaps a last ditch effort by mobile operators to stop their customers from moving over to the much cheaper WLL-M services and save their investment of more than Rs 25,000 crore.

The slugfest started last month when Bharti's Airtel mobile service blocked all calls coming from Tata Teleservices' WLL-M network in Andhra Pradesh. Though that interconnect was restored soon, other mobile operators across the country decided to block calls from all WLL-M networks last week.

Since there is no agreement as yet between cellular operators and WLL-M operators for interconnecting each other's calls directly, the calls from limited mobility to cellular networks were coming via networks of public-sector telephone companies BSNL and MTNL, with whom cellular operators have an interconnect agreement. The blockade by cellular companies meant that the users of limited-mobility phones (five lakh across the country) cannot call over one crore cell-phone users. WLL-M operators cried foul and the Telecom Regulatory Authority of India (TRAI) issued orders to cellular operators on January 9 asking them to allow calls from limited-mobility networks to be received on cellular networks.

WHAT'S AT STAKE

Cellular operators

Rs 25,000 cr is the total money invested so far. Rs 8,000 cr is the estimated losses incurred. 1,04,80,430 is the number of subscribers till December 31, 2002.

Limited Mobility Operators

Rs 25,000 cr is the total money invested so far. Rs 7,000 cr is the estimated losses incurred. 4,68,000 is the number of WLL-M subscribers.

Cellular operators refused to comply and challenged the TRAI order. They issued an open letter to the regulator (published in newspapers) accusing it of bias. "The TRAI order is unfair, arbitrary, discriminatory and is against the principles of natural justice," says Sunil Mittal, chairman of Bharti Tele-Ventures, owner of India's largest cellular service Airtel that has a subscriber base of over 28 lakh. Bharti has been asked to permit calls from Tata Teleservice's limited-mobility Indicom to be received on the Airtel network with immediate effect. In contrast, contends Mittal, TRAI did nothing when BSNL stalled the interconnect agreement with Bharti for 15 months, which is still not functional.

TRAI struck back with its own open letter, accusing cellular operators of being unfair, hasty and wrong on facts. "The cellular operators' move is anti-consumer and grossly anti-industry. It is an attempt to create pressure on judicial and regulatory process and subjugate the market," says M.S. Verma, chairman of TRAI (see interview). The regulator has ordered cellular operators to restore connectivity or face penal action. Defiant cellular operators have refused to do so. They have time till January 21 to respond. BSNL and MTNL joined the battle by threatening to disconnect all cellular calls on their networks if cellular companies did not restore interconnectivity. The issue, if not sorted out, could lead to crores of telephone users not being able to make calls. That would hurt consumers and operators both. The stakes are just too high. And the players too big (see box).

FIGHT TO A FINISH

CELLULAR OPERATORS

Refuse to allow WLL-M calls to be received on cellular phone free of charge. Cellular operators pay Rs 1.14 for every 3-minute call made to a WLL-M network. Want parity: like cellular operators, WLL-M operators should pay for interconnect. Claim they are being forced to subsidise and fund their competitors-WLL-M. Refuse to abide by TRAI directive to allow interconnect to WLL-M service. Term TRAI move biased, discriminatory.

TELECOM REGULATORY AUTHORITY OF INDIA

Issues notice to cellular operators for defiance. Says cellular operators are violating existing agreements. Promises guidelines on interconnect by January-end. Says WLL-M won't become full mobile phone service. Alleges cell operators pressurising regulatory process.

The flashpoint has been in the making for the past two years. The cellular industry has been complaining about the lack of a level playing field with limited-mobile services-a misnomer as the services on offer are almost the same as full-fledged mobile services. They also moved the Supreme Court which in December 2002 asked the Telecom Disputes Settlement Appellate Tribunal (TDSAT) to ensure a level playing field. Cellular operators claim they pressed TRAI in August last year to address the issue of interconnection between their networks and that of the limited-mobility players prior to the nationwide launch of WLL-M services-the Tatas went nationwide last month and Reliance opened bookings for its Reliance India mobile service on January 15.

Their contention: when a call is made from a cell phone to a fixed-line phone or a WLL-M phone, the mobile subscriber pays Rs 1.20 for three minutes in addition to the airtime. Of this, Rs 1.14 is paid by the cellular operator to the fixed line or WLL-M operator. In other words, the fixed-line operator does not charge anything to its subscribers for incoming calls, but gets Rs 1.14 per call received from the mobile operator. On the other hand, when a call is made from a fixed line or a WLL-M phone to a cell phone, the cellular operator gets nothing. The fixed-line subscriber is charged Rs 1.20 for a 3-minute call and the money is kept by the fixed-line operator. Because of this system, cellular operators say they are finding it difficult to make incoming calls free.

Inherent in the system was a subsidy for fixed-line operators, justified by the stringent social obligations imposed on them. But cellular operators are unwilling to extend the subsidy to WLL-M because it is a rival service. Reliance Infocomm and Tata Teleservices have already announced far lower tariffs than the prevailing cell-phone charges and cellular operators know that if they do not match these rates their subscribers would switch to WLL-M. Cellular operators say that if they too were given Rs 1.14 per call received on their network, it would help them offer free incoming calls to their subscribers-something they know they have to offer sooner than later.

BASIC/WLL-MOBILE OPERATORS

Claim interconnect charges paid by cellular operator are meant to subsidise their basic telephony. Cellular operators charge airtime, basic operators don't. Unlike cellular companies, basic operators have to provide service in unviable areas. BSNL and MTNL threaten to disconnect cellular calls.

TRAI agrees that limited-mobility service cannot be treated at par with fixed-phone service in determining interconnect charges and argues it is committed to announcing a new tariff structure and interconnect charge regime by January-end. Then why couldn't TRAI wait till then instead of forcing an unfair system on us, ask the cellular operators. As a clinching argument, TRAI cites the interests of WLL-M customers as the reason for its haste. But cellular operators are not convinced. To them the interest of the one crore cell-phone users is as important.

Limited-mobility players on their part have conceded that they are willing to have an equal termination charge for calls made to and from a WLL-M phone to a mobile phone. "We have offered an interim 30 paise per call termination charge with a commitment to pay (or receive) the difference between the final termination charge determined by TRAI," says S. Ramakrishnan, MD, Tata Teleservices. Adds a Reliance official: "We have already offered them zero termination or bill-and-keep charge on both sides (networks at both ends are free to charge what they wish from the customer and keep what they get)."

Cellular operators have rejected these proposals. Reason: they have been paying thousands of crores of rupees (Rs 1,600 crore in 2002 alone) as access charges to fixed-line operators. They say their cost of terminating a call is 90 paise and they will settle for nothing less than that. "This is not a subzi bazaar where anyone can say this is what we can give as termination charge. Why hasn't the regulator sorted out the issue before the launch of services by new operators?" asks Rajeev Chandrasekhar, chairman, Cellular Operators' Association of India and of BPL Innovision Group. Asim Ghosh, managing director, Hutchison, India's second-largest mobile operator, is equally combative. "Everyone is talking about the right of the limited-mobility subscribers. But no one seems to be concerned about the right of the cellular subscribers to get more affordable services," he says.

If WLL-M players-who have promised customers free incoming calls and tariffs as low as 40 paise per minute-agree to a termination charge of even 90 paise per call, their tariff structure would need to be reworked.

In many ways, the Government has to share the blame for the current chaos. The genesis of the problem lies in allowing fixed-line players to offer mobile services under the garb of limited-mobility without bidding for mobile licences. TRAI has now been asked to consider allowing a fifth and a sixth cellular players. It is unlikely to happen in a hurry as the regulator will have to build a strong case for more players in an already crowded market, perhaps the most competitive in the world.

What now? Are cellular, limited-mobility and public-sector telecom operators on the verge of cutting off wires on each other, stranding most telephone users with dead lines? Unlikely. Right now all parties are buying time awaiting the TRAI's new rules of interconnect which according to Verma may come even before the end of this month.

Those rules too may or may not satisfy all operators and could fuel another battle. And that is bound to take matters beyond the regulator to the highest level of Government, which, by the way, was instrumental in giving the green signal to WLL-M services. The end solution is most likely to be a balancing act: cellular operators will get a slice of interconnect charges allowing them to lower their tariffs further, while WLL-M operators may have to raise tariffs a little to meet the payout to cellular companies. Till such a package is worked out, there will be more blood on the streets. And the bubbly will remain in the freezer.

INTERVIEW: M.S. VERMA

"We'll deal with delinquency"

Under an unprecedented attack from cellular operators and faced with a chaotic and loss-laden telecom industry, TRAI Chairman Maya Shankar Verma put up a brave defence to Senior Editor Rohit Saran. Excerpts: On the chaos in the telecom sector: What cellular companies have resorted to is arbitrary, discriminatory and may even be illegal. It's an attempt to stop a service that couldn't be stopped through a judicial process. It creates the impression that the system is not working. We have to demonstrate that it is and it will deal with delinquency. On the delay in new interconnect rules: In July 2002 we released a reference interconnect offer. New interconnect rules will be announced by January-end or even earlier. They will be cost-based and non-discriminatory. It took time because there aren't reliable data on interconnect costs. On failure to ensure level-playing field: Our process is transparent. We have told cellular operators that everybody's interest will be protected. We did change Reliance Infocomm's tariff proposals, which might have been predatory. Regulation is accountable for what it does and what it doesn't. On WLL-M being a threat to mobile service: Our stand is, and will remain, that product differentiation between limited mobility and mobility will be maintained. The court has said so. The licence terms say that. If there is a licence violation, cellular operators should approach the licensor. On TRAI's autonomy: None of the players in the industry is exercising self-regulation. Then there is multiplicity of authorities. Licensing and spectrum allocation is with one authority; market regulation is with another. But we are under no pressure-except the pressure of the market. On holding dual posts: The post of IDBI Bank chairman is non-executive and is not in conflict with my functions in the TRAI. I take no remuneration from the bank. Having spent my life in the financial sector, I didn't want to severe links. I had informed the Government of my position before accepting chairmanship of TRAI.