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SMS charges set to hit rock bottom
SMS rates are set to crash with telecom watchdog Trai reconsidering its longstanding policy of non-interference on tariffs.

Following an expose by TOI on November 5 that SMS tariffs are 50 to 100 times higher than what it costs service providers, a top Trai official said, “We are going to issue a consultation paper to review telecom tariffs within 20 days to a month.’’

This means consumers can expect substantial relief in SMS tariffs latest by March.

According to the official, the move would have come sooner had the regulator not had its hands full with a consultation process on controversial 3G spectrum issues.

The now inevitable tumbling of SMS rates has important implications for data usage in the country. At present , SMS forms less than 5% of the total revenue for mobile operators. The widespread proliferation of texting is expected to spin off into far higher levels of internet usage . Experts confirm that a crash in SMS tariffs could be the first step to generating demand-side pressure for wireless broadband access.

The cost of an SMS is a fraction of a paisa. This is because an average SMS consists of 1KB data, which takes a fraction of a second for transportation and termination . SMS and other valueadded services form 10% of the Indian telecom industry’s annual Rs 1 lakh crore-plus revenues. The current regime followed by telecom operators is “bill and keep” . This means your operator keeps the entire amount that he bills you for the SMS and pays nothing to the network to which the SMS is sent. This is for two reasons: First, the proportion of traffic across networks is roughly equal, and second, the cost of termination is negligible.

This revelation by TOI knocked the bottom out of claims that India has among the lowest telecom tariffs in the world.

Trai has so far refused to regulate rates under the belief that competitive markets were at work and tariffs reflect costs. However, in the SMS arena, competition has clearly failed to move prices closer to costs. The practice of pricing SMSs high has been prevalent for several years while Trai has chosen to look the other way. This, despite facts stating otherwise in Trai’s own cost data from its IUC regulation of August 2006.

As it turns out, the true cost of sending an SMS would never have come to light if new entrants had not been forced to sign interconnection agreements with existing operators at a price that is far higher than the actual cost.

Voice calls are already being offered at 1 paisa per second . As new players flood the market, SMS tariffs could become the next major frontier of the pricing war now raging in the Indian servicing industry.

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