Telecom tariff in Saarc countries

July 21, 2008

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Saarc members have been talking of regional cooperation for a long time. Saarc itself is over 20 years old. There must be some real results-- something that citizens can feel. This article proposes that the citizens of Saarc countries be allowed to speak to each other at the low priced calls.

Saarc countries have not addressed the problems of intra-SAARC communications in their multiple marathons of talk? They have, of course, passed several resolutions on the subject, but they have gone beyond that.

Instead, the Saarc countries that were members of the WTO entered an exception to the Most Favored Nation (MFN) principle in the General Agreement on Trade in Services in 1997 for “different accounting rates for different neighbouring countries covered by Telecommunication Agreements entered into by [each Saarc country] with governments of neighbouring countries [other Saarc countries].”

In pre-liberalisation times, international telecom services were provided by bilateral monopolies that agreed on something called accounting rates, which determined how much one could (over)charge the other’s customers for international calls terminating in one’s country. They were opaque and lucrative.

Accounting rates, and along with them the MFN exemption, went the way of the dodo because of the fast pace of liberalisation in international telecom markets. But this singular exception (which no longer has legal validity) is good evidence that the Saarc not only believes that it should be cheaper to call from one Saarc country to another than to a non-member; it has actually tried to do something about it.

What is the ground reality? The cheapest prices from Pakistan are $0.03 (fixed and mobile), offered to many non-Saarc destinations, including the US and Hong Kong China. The lowest Saarc prices are to Bangladesh, $0.12 (m) and India, $0.12 (f). The cheapest intra-Saarc price is four times that of the cheapest extra-Saarc price.

The cheapest prices from Sri Lanka are $0.10 (m) and $0.21 (f); they are not offered to Saarc destinations. The lowest Saarc prices are $0.14 (m to India) and $0.32 (f) to most Saarc). The neighboring SAARC countries cost 40-50 per cent more than the distant USA.

BSNL, the dominant fixed operator in India makes an exception for one Saarc country, offering its lowest price of $0.17 to Sri Lanka. This is the same price offered to the US, UK, and Canada as well. All other Saarc countries are charged $0.28, which is considerably higher than the prices even to South East Asia. On the mobile side, no such exceptions are made: lowest prices to non-Saarc countries are $0.15, while Saarc pays an extra 50 per cent surcharge ($0.22).

It was possible to locate price information only for mobile in Afghanistan, which has a competitive mobile market but an almost moribund fixed operator. Here the leading mobile operator, appears to treat Asia the same, offering a price of $0.49 to the Saarc as well as other Asian countries which is lower than what it offers to more distant destinations.

Maldives and Bhutan, the two micro states, have mobile duopolies and fixed monopolies. Maldives offers the lowest prices to destinations such as Singapore and China ( $0.23 f and m). Lowest prices to Saarc are at $0.30 (f and m), indicating a significant surcharge. Bhutan offers the lowest price of $0.31 (f and m) to the country’s most important trade and political partner, India, and charges the rest of the Saarc $0.59, almost double. The “Saarc-less-India” price is higher than what is charged for Thailand ($0.48, f and m).

Bangladesh has many mobile and fixed operators but maintains a de jure international monopoly that is in the process of being changed into a joint, regulator-managed monopoly. It was reported to have more bypass than legitimate traffic; the fixed monopolist also offers VOIP based lower price services in order to fend off the bypass threat. These facts make the utility of published rates a little problematic. However, according to published prices, Saarc and nearby South East Asian countries enjoy lower prices than to other locations.

In Nepal, where the least reforms have occurred, the absolute lowest published prices are offered to India; the next best prices are offered to Saarc countries and much higher prices to non-Saarc destinations. It is possible that the real prices from bypass operators deviate significantly from the above.

So, it seems that only Nepal takes Saarc seriously. But appearances can be deceiving. Nepal, not having begun its reforms, is still setting international prices using political criteria. It is not a good guide for collective action. Even the data are questionable, given the likely prevalence of bypass.

Global prices: In the countries where reforms have gone the furthest, Pakistan, India and Sri Lanka, costs of international calls are determined by the termination charges imposed by the foreign operators who receive the calls. Domestic competition determines whether the lower costs are passed on to customers.

Prices to the US and Hong Kong China are low because those markets are highly competitive and the governments there do not attempt to keep termination prices artificially high. Pakistan offers a fixed/mobile minute to the US and Hong Kong China, among others, at the extraordinarily low price of $0.03. Sri Lanka comes next with a mobile minute to the US and Hong Kong China at $0.10, followed by India at $0.15 for a mobile minute to the same countries.

It is unlikely that the US and Hong Kong operators charge higher prices from the other Saarc countries. Most likely, these Saarc operators do not pass on the low costs to their customers because of the lack of competition in the local markets. The fact that Indian and Sri Lankan mobile operators offer lower retail prices to the cheap destinations than do their fixed counterparts supports the above explanation. Competition is greater in the Indian and Sri Lankan mobile markets than in the fixed markets. The mobile operators pass more of the savings on to their customers.

Proposals: Two actions are needed to make Saarc beneficial to the citizens of the constituent nations, at least to a degree, by ensuring that calls within SAARC are cheaper than calls to non-Saarc destinations.

First, the forthcoming Saarc Summit in Colombo must direct its regulatory authorities to lower termination charges for Saarc originated international traffic, ideally to domestic levels. This would mean, for example, that Bharti Airtel must pay Sri Lanka Telecom approximately $0.015 only to terminate a minute on its network. That also means that the government of Sri Lanka must exempt Saarc originated traffic from the universal-service levy (which is being collected without any use being made of it anyway).

There is a problem with these recommendation: it violates the General Agreement on Trade in Services, if the lower termination prices and the exemption from the universal service levy are limited to Saarc countries. This was, however, the unrealised spirit of the unimplemented MFN exemption the Saarc members insisted on back in 1997.

There are two ways around the problem:

a) Charge domestic termination charges from all incoming international calls and exempt international calls from all levies. This will eliminate the bypass business at one stroke and end the corrosive effects of the black money it generates.

b) If that is too radical a move, the regulators can at least insist that operators from Saarc countries seeking to terminate traffic in other Saarc countries must be offered the lowest termination charges on offer. This will not bring down intra-Saarc call charges to domestic levels except perhaps in the case of calls to Pakistan, but it will at least eliminate the current Saarc surcharges.

The analysis showed that low termination charges are not enough by themselves to bring down retail prices. In the countries lacking in domestic competition (all except Pakistan, India and Sri Lanka), it would also be necessary to compel the operators to pass on the savings from lowered termination charges to their customers.

If these two relatively simple actions can be taken at the Saarc summit, we will make more progress toward making Saarc beneficial for its people than all the declarations combined. And once the people start talking and interacting and doing business, who knows what could follow? Real regional co-operation ?

The writer is executive director of the regional ICT policy and regulation think tank, LIRNREasi. www:lirneasia.net