![]() It can cause large spillover costs imposed on others, especially if the origination to termination ratios are wildly asymmetric. ![]() ![]() But if this crucial mechanism fails due to cut-throat or predatory pricing, then it can clog rival networks. In a competitive scenario, all service provider companies are sometimes originators and sometimes terminators. These charges are very difficult to compute, and are based on the assumption of reasonable outgoing and incoming traffic ratios. These were the charges that were opaque in the pre-1984 era. These costs are shared according to a formula set by the regulator, called termination charges. But the work of the telephone call or data transmission is done jointly by two or more networks. In a competitive scenario, customers are “owned" by one service provider, in that the revenues are collected only at one point. When AT&T was broken up, the public woke up to the fact that telephone costs were borne both by originator and terminator. So, is there a case for fewer players, for the sake of better financial health, efficiency and better-quality service? Competition can become cut-throat, leading to unhealthy predatory pricing. Their financial health can be a concern not just to shareholders but also to their bankers. Some of them no doubt suffer from the winners’ curse. Additionally, unlike China, in India the service providers also bear a disproportionately heavy burden of spectrum cost, won through punishingly expensive auctions. India has also the distinction of possibly the lowest cost telephony in the world. Of course, not all companies in India are profitable, unlike the two in China. India has a crowded field of more than a dozen companies (a new one just joined the club last week). China is mostly served by just two national mobile telephony service providers. In India, the sector is led by private sector dynamism, whereas in China, the companies are state-owned. But the market structure models followed in the two countries are starkly different. At peak growth rates, they were both adding 2 million mobile subscribers per month. Take the case of two of the biggest telephony markets in the world-India and China. When marginal cost of providing service to an additional customer is close to zero, such a business is a candidate for being considered as a single and natural monopoly. This question is related to whether it has inherent features of large economies of scale and scope. ![]() We are in the midst of the fast evolving age of convergence, where the distinction between telephony, television and the Internet is fast blurring.īut let’s revisit the question of whether telecom is a natural monopoly. The revolution caused by mobile telephony is yet to be fully understood. Telecom has become the bedrock and architecture on which reside other services like finance, education, entertainment and e-governance. In most of the world, there is intense competition fuelled by multiple communication technologies. That’s because the emergence of the Internet, the mobile phone and cable plus satellite television was mostly post 1984 (that Orwellian year!). As we look back at the saga of the AT&T break-up, it looks strange and archaic. ![]()
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