TRAI mulls slashing outdated price ceilings for high-speed business lines

Banks, IT firms and data centres could see price changes for the private high-speed broadband lines they use to move data securely and run critical operations, as the telecom regulator has initiated its first review of domestic leased circuits (DLCs) prices in over a decade.

A DLC is a dedicated broadband line that telecom operators provide to enterprise clients for secure, high-speed communication between their offices, data centres, and operational hubs. Operating at bandwidths ranging from 2 Mbps to 10 Gbps (and sometimes higher), these circuits form the backbone of enterprise connectivity.

The Telecom Regulatory Authority of India (Trai) said on Friday, “The rationale for reviewing ceiling tariffs for DLCs stems from multiple factors, including market evolution and technological progress. Service providers offer tariffs well below the prescribed ceiling in dense routes, indicating that the prescribed ceilings tariffs may not reflect prevailing tariffs in the market. In contrast, remote and hilly regions continue to face high tariffs due to limited competition.”

The regulator floated a consultation paper on Friday, seeking comments from stakeholders by 22 February on the review of tariffs for DLCs.

Previous review

Trai currently prescribes the tariff ceilings for four specific bandwidth capacities of 2 Mbps, 45 Mbps, 155 Mbps and 622 Mbps. In the most recent review in August 2014, the regulator reduced tariffs for DLCs by up to 60%. After the review, the maximum rate on a 2 mbps leased line between 5 km and 500 km long dropped to ₹3.41 lakh a year annum from ₹8.5 lakh a year.

Similarly, for 45 Mbps leased connections on a long distance band, the ceiling tariff was reduced by 57% to ₹26.54 lakh from ₹61.59 lakh a year. For 155 Mbps, the new rate was set at ₹58 lakh a year.

“The cost of bandwidth has declined significantly due to advancements in transmission technologies. Fiber optics, DWDM (dense wavelength division multiplexing), and SD-WAN (software-defined wide area network) have reduced the unit cost of long-haul bandwidth. However, ceiling tariffs have not been revised to reflect these changes,” Trai said.

Since Trai sets a ceiling, service providers are allowed to offer lower rates. Currently, providers offer discounts ranging from 30% to 99% below these ceilings, suggesting the 2014 limits are significantly higher than actual market rates.

The telecom operator has also sought feedback from the stakeholders on permitting internet service providers (ISPs) to provide domestic leased circuits. “With the upcoming notification of new (Telecom Act) rules, ISPs may be permitted to establish own infrastructure or lease/purchase dark fiber infrastructure from infrastructure provider (IP) or digital connectivity infrastructure provider (DCIP) entities and offer it as a managed DLC service,” Trai said.

The regulator added the expansion would allow ISPs to compete directly with national long distance (NLD) operators in the DLC market, allowing them to monetize the existing network infrastructure more efficiently, and enhance vitality and competition in the sector. Currently, smaller ISPs rely on circuits leased from bigger operators to provide internet services.

VPNs in tariff framework?

Another major focus of the regulator is also to evaluate bringing virtual private network (VPN) services under the tariff regulation framework, effectively ending their current unregulated status. Under the 2014 rules, the government does not regulate the pricing of VPN-based domestic leased circuits.

In 2014, VPNs made up only 30% of the market, but by 2023-24, their share of revenue had risen to 47%. Industry players have indicated that VPN-based circuits are likely to become the norm in the future because they offer better scalability, flexibility, and cost-efficiency than traditional dedicated lines.

The Cellular Operators Association of India (COAI), which represents private telecom operators, had said in its submission to Trai on the pre-consultation related to the subject in May last year, “The DLC market in India operates efficiently under competitive market dynamics; also, the tariffs are already substantially lower than the tariff ceilings. Any further regulatory intervention in this segment is unnecessary and counterproductive, given the absence of market failures, robust competition, and demonstrated consumer protection through market forces."

Big tech companies, represented by the Broadband India Forum, want the regulator to rationalize the current DLC tariff structure. “The cost of providing bandwidth has significantly decreased over time with the switchover from legacy leased circuits to IP based shared bandwidth, and this reduction in cost is a key factor which needs to be considered in the present exercise of reviewing the tariff structure for DLCs,” it said in its submissions to Trai last May.