Paying 50 paise to Re 1 per SMS, depending on your package? Well, the cost to your mobile service provider of delivering your message to another mobile network is less than 1 paisa. That’s because an average SMS consists of 1KB data, which takes a fraction of a second for transportation and termination. This revelation not only belies claims that India has among the lowest telecom tariffs in the world, it could also set the stage for SMS rates to fall sharply. Voice calls are already being offered at 1 paisa per second. As new entrants flood into the market, SMS tariffs could become the next major frontier of the pricing war now raging in the Indian mobile services industry.

SMS and other value-added services form 10% of the Indian telecom industry’s annual Rs 1 lakh crore-plus revenues. The current regime followed by telecom operators is `bill and keep’. This means your operator keeps the entire amount that he bills you for the SMS and pays nothing to the network on which the SMS is sent. This is for two reasons. First, the proportion of traffic across networks is roughly equal, and second, the cost of termination is negligible.

Trai has so far refused to regulate SMS tariffs along with some other tariffs under what is known as forbearance. Forbearance is usually adopted by regulators when they believe that competitive markets are working and tariffs reflect true costs. As it turns out, the true cost of sending an SMS would never have come to light if new entrants had not been forced to sign interconnection agreements with existing operators at a price that is far higher than the actual cost.