Competition Keeps Prices In Check — But Not Necessarily Low

Writing in India’s leading business daily The Economic Times last week, V Raghunathan, CEO of GMR Varalakshmi Foundation, complains about the exorbitant data charges levied on business travelers when they use their mobile devices to download emails during their overseas trips. Frustrated by lackadaisical response from his mobile service provider, he turns to TRAI, India’s telecom industry regulator, for redressal. When he draws a blank even from TRAI, he uses his article in the ET for “cathartic effect”.

For lesser mortals who face similar problems but don’t have the benefit of venting it out in leading newspapers, there’s the blog! 

Here goes:

From: S Ketharaman [s.ketharaman@gtm360.com]
Sent: 08 July 2009 22:52
To: ‘editet@timesgroup.com’
Subject: Letter to the Editor of The Economic Times
 

Dear Sir / Madam:

  

This has reference to the guest column titled “An appeal to the telecom regulator” by V Raghunathan in The Economic Times edition dated 4 July. His suggestion for mobile devices to be equipped with a feature that warns users with a PAUSE signal whenever they start using their handhelds in a foreign country is very interesting.

  

Having accessed data on mobile devices in the UK, Germany and the USA, I can say that extremely high charges for data downloads outside the home country is not an issue unique to Indian overseas travelers. A couple of years ago, a customer from the UK, who never exceeded his monthly fixed fee of GBP 29 for his 3G data plan while inside the UK, got a rude shock when he received a bill for GBP 400 for the one month that he had visited India and downloaded not more than 50-60 emails during his entire stay of five days.

  

Since data is one of the value added services that telecom companies are betting on to offset declining conventional voice-based average revenue per users, I doubt if they will ever get together to arrive at a “more reasonable pricing” as Mr. Raghunathan muses. Even if they do, wouldn’t that be be deemed as “price fixing”, which is illegal according to antitrust / cartel laws in many countries?

  

Historically, while it is true that competition keeps prices in check, there is ample evidence to show that the band in which prices are kept “in check” by competition is not necessarily close to cost plus reasonable margin as consumers tend to expect. Apart from the exorbitant overseas data download charges slapped by telecom companies, the ridiculously high “not sufficient funds” fees levied by banks in the UK and USA are another example to illustrate this. What competition does do is give consumers the option to use alternatives like hotel WiFi connection mentioned by the author – although, having come across hotels in London that charge as much as GBP 14 per hour or GBP 40 per day for in-room WiFi connections, I am not sure how universally applicable the USD 20 figure mentioned in the article is.

  

Since we can be reasonably sure that telecom companies are not going to be too eager to do anything about their high overseas download charges, turning to regulators might be the only option, as the author has done. But, even assuming that regulators deign to respond to a common man’s plea, it is questionable how far they can help. After all, even if the Indian regulator TRAI has control over pricing in the context of Indian telecom companies, regulators in many developed countries do not tend to get involved in matters of basic pricing that are explicitly announced by telecom operators, who are therefore free to charge “whatever the traffic can bear”.

  

Sincerely yours,

   

KETHARAMAN SWAMINATHAN

Founder CEO

GTM360 Marketing Solutions Private Limited

 

 

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