Cell tariff puzzle
02 December, 2010
Cell tariff puzzle

Georgian cell regulatory body questions consumer tariffs again. It thinks that Georgian cell market operators have not cut down consumer tariffs as expected when the interconnection tariffs between operator companies was halved. Cell operators, on the other hand, ask the regulatory body to increase the halved interconnection tariff again to offset the losses they suffer after the introduction of excise on cell calls.
Georgian National Communication Commission (GNCC), the communication market regulatory body, has to solve another cell tariff puzzle.
Last February Georgia was named as one of the most expensive countries globe over respective to cell tariffs by research of a non-governmental watch-dog, the Association of Young Financiers and Businessmen (AYFB). AYFB argued that the reason was the cartel agreements practiced by two monopolists Magti and Geocell for years and hailed GNCC to handle the problem.
GNCC disagreed with the accusation; however, it cut down the interconnection tariff [fixed on outgoing calls between cell operators] by 45% in May [from 14.8 tetri per minute to 8 tetri] to give an impetus to cell operators to reduce consumer tariffs ultimately.
Economic analysts and non-governmental watchdogs remained skeptical nevertheless. They argued that interconnection tariff has been twice reduced within the last 5 years shrinking from 24.8 tetri to 14.8 tetri per minute but no tariff slump on cell calls ensued. The AYFB analysts insisted that cartel agreement between Magti and Geocell [covering 49% and 43% of Georgian cell market respectively] is the real reason of high tariffs and GNCC in turning a blind eye to it. Beeline, the third cell market player having entered the market in 2007 with much lower tariffs, could not change the situation as its coverage area falls behind Magti and Geocell cover zone.
This time GNCC promised that if no tariff slump ensues as a result till the end of the year, GNCC would force cell operators to cut down prices. 
Cell operators responded briskly this time. They did not cut down retail [consumer] tariff standing at 28 tetri per minute on outgoing calls among cell operators networks but entered the market by new preferential tariff products starting June. Magti introduced a new product Bani, fixing 4 tetri per minute on internal calls from Bani to Bani; 12 tetri on calls to other Magt-based product Bali and Magti-Fix, and 16 tetri - on any outgoing calls. 5 tetri was fixed for Bali subscribers on internal Bali calls.

cut down tariff to 12 tetri for Lai-Lai subscribers on all calls. But consumer has to pay GEL 1 per month for this tariff system.  Beeline introduced new brand Fresh fixing 9 tetri on all outgoing calls [including the fixed line] starting the third minute of call. The first two minutes cost 18 tetri, but calculation does not start on each call anew.
But scenario developed in unexpected direction later in summer. Government mused and decided that cell companies enjoy pretty big profit [the total income of cell market accounted for more than GEL 811 million in 2009] and decided to tax incomes of cell calls by 10% of an excise starting September of 2010.
Economic analysts criticized the new tax as far as excise is used to tax either luxury goods or products that harm health. Cell product and service does not belong to either of them and has never been excised anywhere in the world. They predicted that the expected retail tariff slump will never occur thanks to this new tax and tariff can go even higher for business always compensates its losses on expense of consumers.  
Meantime GNCC thinks that introduction of certain preferential tariff-products does not mean the expected retail tariff-slump actually and decided to research whether or not the currently active retail tariffs are fair. It has to air findings of its research on December 5, 2010. However Magti and Geocell submitted an official request at GNCC to envisage the newly introduced 10% of excise and increase the interconnection tariff again. Beeline does not join Magti and Geocell’s request. The point is that Beeline with its 8% of market share [as registered in 2009] is acknowledged as a non-powerful market player and enjoys preferential interconnection tariff system as following: it pays the new tariff 8tetri per minute to Magti and Geocell on outgoing calls, but the latter two have to pay the old interconnection tariff 14.8 tetri on outgoing calls to Beeline.
“To be ranked as powerful players we need to have at least 15% of market share,” Teona Baghdavadze, PR Manager of Beeline, explained to Georgian Journal adding that their share increases quite rapidly lately.
The underway GNCC research aims to update the market share information as well and if it acknowledges that the Beeline share increased to 15%, it can no longer enjoy the preferential interconnection tariff system. According to Khatia Kurashvili, PR Manager of GNCC, it cannot be said at the moment whether or not the interconnection tariff will be increased and how much till the research is on. But Magti and Geocell expect to increase the interconnection tariff by at least 10%. On the other hand they do not think to abolish any of the already introduced preferential-tariff products, nor think to increase retail consumer tariffs if interconnection tariff is really increased.
“Tariff increase-reduction is regulated by the market demand and competition in fact,” Irakli Lobzhanidze, Marketing Director of Magti, explained to GJ. He disagrees that the new tariff-based products do not mean retail price-slump.
“Consumer tariff is reduced significantly and it reflects on Bani and Bali tariff systems. Our subscribers can use these new tariffs, they are brand tariffs and not temporary products,” he said.

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