Illogical

While the lowered access deficit charges (ADC) are to be welcomed since they help reduce the charges for long-distance calls, the six-month long review by the Telecom Regulatory Authority of India (Trai) has proved disappointing since it addresses none of the issues that have come up in recent months; indeed, several arguments made in the past by Trai itself have been rejected summarily in the new review, with no particular reason given for doing so.

It looks as though the ADC review has been reduced to an exercise in elementary arithmetic—the number of phones has doubled (the mobile subscriber base rose from 21 million in September 2003 to 46 million in November 2004) and so the rate per call can be halved to keep the absolute ADC revenue unchanged.

Indeed, since none of the flaws of the existing regime has been addressed, it’s natural to expect that the earlier abuses will also continue.

Since the biggest abuse is of course disguising international calls as local ones, as Reliance Infocomm has been accused of doing, one would assume the new ADC regime would take care of this by moving to a regime based on flat revenue share, where the ADC is paid equally on all calls, as opposed to what Trai has done —that is, levied a separate ADC rate on national long-distance calls, another on outgoing international calls and yet another on incoming international ones.

Indeed, in its consultation paper of June 23, 2004, Trai had argued in favour of a flat revenue-share based ADC for precisely the reason that it would put an end to arbitrage opportunities.

Yet, in its new ADC paper, Trai itself recognises that arbitrage opportunities are still quite large—a useful table provided by Trai says while the old arbitrage opportunity for disguising international calls as national long-distance ones ranged between Rs 3.45 and Rs 4.25 a minute, this will still be between Rs 2.95 and Rs 3.25 per minute under the new regime!

Sadly, Trai still hasn’t addressed the issue raised by competitors—that BSNL, which gets almost all the ADC money, can use this to subsidise its other businesses (BSNL’s cellular tariffs are the lowest in the country) since BSNL has still not been forced to keep separate accounts to show where it uses the ADC funds.

The new ADC paper also justifies the fact that BSNL will get almost all the ADC payments by arguing that it has the highest proportion of rural phones—35 per cent of BSNL’s phones are in rural areas. Indeed, this has been used as the justification for now cutting out MTNL from the ADC bonanza even though it too has a large number of fixed phone lines.

But this raises an important issue which makes nonsense of the ADC calculations. Till now, Trai has justified an ADC of around Rs 5,500 crore a year by saying this is the difference between the costs incurred by phone companies for operating fixed lines and the rentals they got for phones all over the country.

If the ADC is now defined as being for primarily rural phones (and roughly 29 per cent of all fixed phones are in rural areas), then surely it cannot be the same as it was earlier. Since Trai doesn’t see this contradiction, it doesn’t bother to explain it either.