Compensation for call drops: A Cop-out by TRAI

The Telecom Regulatory Authority of India (TRAI) recently ordered that mobile operators would be required to compensate customers for dropped calls. Every dropped call would earn the calling customer Re 1, subject to a daily cap of Rs 3. Given how widespread the issue appears to be, particularly in metros, many customers would be eligible to earn a maximum Rs 90 in monthly compensation. No wonder it was widely welcomed by customers and politicians.

Undoubtedly, the mobile operators are responsible for the present situation. The TRAI consultation paper on call-drops shows that operators have not made adequate investments to support the growing traffic. In fact, it has been said that most of the leading mobile operators have spent so much money acquiring spectrum rights that they have none left to build out the networks to effectively use the spectrum. During 2013-14, as per TRAI assessment, operators invested only Rs 9,325 crore in network equipment; in the same year, the industry invested Rs 61,162 crores in spectrum. Between 2012 and 2015, the mobile operators bid Rs 181,656 crores for spectrum, an amount close to the entire network gross block of the industry. This is over and above the Rs 37,000 crore one-time fee that the Department of Telecom has demanded from the operators (subject to the outcome of the court cases) for holding excess spectrum in the past.

There can be no denying that scarce spectrum in India remains underutilized by the defense and other government bodies. But it is also true that private mobile operators have been extremely inefficient in using the spectrum for which they have paid huge amounts. A recent audit by the Department of Telecommunications (DoT) has reportedly shown that better optimization of the network could result in dramatic improvements in the quality of service. It has also been found that operators have set aside spectrum for data capacity expansion at the expense of their voice quality. And then, we have the spectacular case of spectrum inefficiency: an operator who acquired 20MHz of pan-India spectrum in 2010 for Rs 12,840 crore has not launched services even five years later. 

An additional issue that has prevented network roll-out, at least in some cases, is that of permissions for tower infrastructure. The recent push-back amongst municipal authorities in permitting cell-sites in dense urban locations coupled with unnecessary and unscientific scare-mongering about the impact of radiation have added to the problem. The government needs to create certain national guidelines for critical infrastructure like cell-sites and fiber networks. The ambitions of a Digital India cannot be held ransom to by local municipalities, building societies and activists. 

So the issue of call drops is a complex one, yet the TRAI has treated it in a populist, one-dimensional manner by declaring compensation. It is true that customers should receive a good quality product, but the mobile service is after all a commercial contract between two parties. A compensation scheme that has no direct connection to the price paid by a customer or ‘loss’ suffered by the customer appears rather one-sided. The average monthly spend by a mobile customer is Rs 120, of which the spend on voice calling is Rs 67.50, therefore, the scenario of a customer earning more than the spend is not unlikely. If TRAI believes such penal measures or financial disincentives would solve this complex problem, then it is mistaken. The operators will just go to court, without any outcome for several years. In fact, a commercially sound and fair compensation mechanism would be for operators not to be allowed to charge for dropped calls: no service, no charge. TRAI rejected that option on the basis some technical implementation difficulties that were identified by the operators, in spite of the fact that its chosen compensation option is even more difficult to implement. 

I have three simple questions that the DoT and TRAI should think about. Do customers really value voice service quality, in the sense that they would be willing to pay for it and make provider choices on the basis of quality? If yes, is it possible for a mobile operator to actually create a differentiated quality product that is economically viable? If yes, is the mobile services market truly competitive enough to encourage such differentiation? 

I would not be surprised if the answer to all the questions is a No.

(Disclosure: The author was associated very closely with the Tata group's telecom business for many years. I continue to remain engaged in advisory services (mostly, teaching) with the Tata group telecom companies and other mobile/tech companies.)    

Srinivasa Addepalli is the founder of GlobalGyan, a management education firm and a visiting faculty at IIM Ahmedabad and NMIMS. He was earlier Chief Strategy Officer at Tata Communications. Twitter: @addepalli