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Why Mobile Tariffs are on Rise?

Over the past 3 years the interconnection tariff has declined from 8 Tetri to 3.5 Tetri, while individual call tariffs have increased by 240%, from 10 Tetri to 24 Tetri.

The cellular communications market of Georgia has always demonstrated principles incompatible with the free competition standards. There were times, when for 20 years all three companies had set the same service tariff of 28.8 Tetri per minute.

In 2010 the Georgian National Communications Commission (GNCC) explored the market and discovered that cellular communication companies used to spend only 15 Tetri on one-minute call to external networks, while intranet call prices were no more than 5 Tetri.

As a result of the market examination, the GNCC introduced upper margin retail tariff in the amount of 25 Tetri and announced gradual reduction in interconnection tariff, while this tariff makes much contribution to the retail tariff formation.The cellular communications market of Georgia has always demonstrated principles incompatible with the free competition standards.

There were times, when for 20 years all three companies had set the same service tariff of 28.8 Tetri per minute. In 2010 the Georgian National Communications Commission (GNCC) explored the market and discovered that cellular communication companies used to spend only 15 Tetri on one-minute call to external networks, while intranet call prices were no more than 5 Tetri.

Six years ago the interconnection tariff was 14 Tetri, while the tariff declined to 3.5 Tetri for all operators as of January 1, 2015. It is logical that this change was to lower retail tariffs and boost the market competition, but it turned out Magti company had different plans.

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Starting April 27, 2016, the standard tariff price for Magticom subscribers became 24 Tetri for any cellular and landline operators. Starting late April, 2016 Magticom subscribers will talk for 24 Tetri a minute, instead of previous 10 Tetri, for both intranet calls with Bani and Magti subscribers and any other mobile and landline operators of Georgia.

Magticom has carried out opposite policy against the interconnection tariff reduction and increased tariffs on its several services. Starting March 17, 2016 Magticom company increased the tariff for sending SMS notifications abroad to 24 Tetri.

It should be noted that Magticom has not confined with only this tariff. At the end of February Magticom subscribers received notification that the tariffs for making calls to G-Mobile network had also increased.

In January 2016 Magticom revised SMS notification service conditions and the  balance checking service tariffs. Namely, SMS service tariff rose to 6 Tetri in late January, while dialing 444 for checking the existing balance increased to 2 Tetri.

Regardless of technological development and cellular service tariffs reduction tendencies worldwide, in Georgia cellular service tariffs are rising. At the same time, MP Zurab Tkemaladze, head of the parliament’s sector economy and economic policy committee , has developed a bill calling to free cellular communication service operators from the excise tax starting January 1, 2018. The Parliament will discuss the bill in rush.

According to the bill, the 8% rate for excise tax for mobile communication services will be maintained up to January 1, 2017, while the rate will decline to 3% up to January 1, 2018.

In 2011 the Government was referring to low tax burden on the cellular communications sector as one of the main reasons for introducing a new tax.

“Georgia’s averaged tax burden is 25-26%, while tax burden of cellular communications sector is 10-15%. We believe it will be expedient to redistribute the pressure to such fields that have lower burden and recorded one of the major profitability indicators”, the then Finance Minister Kakha Baindurashvili said.

Main components that determine conversation in the mobile network are as follows: start and end of call, interconnection, excise and VAT taxes. While excise tax removal will cut expenditures of cellular operators. Consequently, it will be possible to revise tariffs, however, cellular communication operators are not obliged to do this. The GNCC members assert that it is the companies discretion to decide whether to reduce or not to reduce the tariffs and the GNCC cannot interfere in this process.

Why do the Authorities reduce tax burden for the companies that have set high profit margins and why is this burden lower compared to other sectors?! Even more so, it is clear that the sector’s competition is low and these changes are less expected to cheapen cellular communication services. It should be also noted the 2017 budget will receive 24 million GEL profits through this amendment.

The Association of Young Financiers and Businessmen (AYFB) calls on the GNCC to examine grounds because of which Magticom has increased tariffs. The AYFB also urges Magticom to introduce clear, substantiated position what factors have preconditioned that tariffs have surged to maximal margin available. It is important that the GNCC should be based on the consumer interests and try to stimulate reduction of tariffs on the market, not growth.

It should be also noted that in 2010 the GNCC started examining the market’s oligopolies based on the AYFB monitoring reports.

The AYFB says that it is necessary that the GNCC repeatedly examine the cell communications market and decline the existing maximal margin tariff.

«It should be also noted that 6 years ago the companies used to spend 15-16 Tetri on one-minute call and today expenditures will be much lower, because technologies are developed on continuous basis. Tariffs are declining worldwide and they must not rise to the maximal margin in Georgia», the AYFB statement reads.