Trai some consistency

Normally, what most look for in regulators is consistency (the independence and unbiased nature are taken for granted). So much so that you can just look at various rulings/position papers of the regulator and they all point in the same direction and give you a sense of the regulator’s mind on different issues.

That’s why, for instance, you never see an Alan Greenspan ever say anything out of turn and all statements by the US Federal Reserve are carefully calibrated and in sync with one another—indeed, with one glaring exception on the issue of taxing FII inflows in recent times, the RBI is in the same mould.

When it comes to measuring independent regulators such as the telecom one, Trai, on this count, however, you come up short. The power regulators, ironically, fare well on the issue of consistency, but that’s for another reason—they consistently refuse to challenge the monopoly status of the state electricity boards or their successors, the private sector distribution companies like BSES in south Delhi!

Trai chief Pradip Baijal has been charged, by this columnist among others, as having done a major U-turn on the allocation of spectrum, the airwaves on which mobile phone firms carry their signals.

While he first said there was enough spectrum to go around, and used this to bring in two new players and allocate them fresh spectrum (India is perhaps the only country in the world that has 6-7 players in each telecom circle), Trai’s current view is that there is a huge spectrum shortage.

Baijal rebuts this charge of having created the spectrum shortage on two counts (see ICE World, Business Standard, June 1, 2005). One, he says when he brought in two new players, Reliance and the Tatas in 2003, it didn’t look as if the growth of mobile phones, and hence the need for spectrum, would be as high as it is today. Two, the spectrum that the new players (who used CDMA technology) used could not have been used by the existing players, who used GSM technology—so whatever else, Trai’s actions didn’t reduce the spectrum available for the existing operators.

The Trai recommendations on Unified Licensing in October 2003, which is what brought Reliance and the Tatas in, however, say something quite different. For one, it says mobile phone growth “has accelerated from around 3 lakhs (sic) subscribers per month in May 2002 to almost 2.26 million subscribers per month in May 2003 … In March 2003, the wireless subscriber base was 13 million, which has almost doubled in last seven months … the expected wireless subscriber base by December, 2005 will be 100 million”.

As a matter of fact, the mobile subscriber base will be around 65 million by the end of the year, but surely this makes a mockery of the current claim that, two years ago, when it brought in more players, Trai didn’t expect this kind of explosive growth—indeed, Trai’s projections two years ago showed the spectrum shortage in 2005 was going to be pretty serious and yet it got in more players.

The claim that the CDMA lot uses a completely different spectrum from the GSM lot is also incorrect as CDMA companies were allotted additional spectrum in the 880 MHz to 889 MHz frequency, in which GSM equipment also works.

Curiously, the same paper says “additional spectrum is now being made available by Ministry of Defence and the existing contractual commitments to existing cellular and WLL players can easily be met, leaving out a balance for more players”. Today, Trai’s stance is that there isn’t any more spectrum to give since the ministry of defence is not vacating the spectrum!

An equally big flip flop area is that relating to access deficit charge, or ADC, that each one of us pays BSNL each time we receive or make a long-distance call—supposedly, this is the money BSNL loses when it sets up phones at concessional rates and needs to be compensated for.

In May 2003 Trai estimated that the ADC was Rs 13,000 crore. In October the same year, it came up with a revised figure of Rs 5,335 crore as the ADC due to BSNL, and Rs 995 crore for other fixed-line operators.

In the consultation paper eight months later, in June 2004, it came up with a range of ADCs, depending upon the rentals BSNL charged for its phones from the people who got them at a subsidised rate, and this varied between Rs 1,402 crore (if the rental was Rs 200 per month) and Rs 3,436 crore (if the rental was Rs 156). In January 2005, however, when the new ADC rates were notified, Trai went back to the earlier figure of October 2003 of Rs 5,300 crore!

The reason given for not lowering the ADCs was that BSNL had to pay a higher tax rate and that there was “a decrease in the overall long distance minutes per subscriber”—Trai said the tax rate, which was being challenged, was a one-time thing and so the real issue was the falling long-distance minutes, which is where telcos like BSNL really make huge profits.

The problem is that the tables given in the same order don’t show a decline in most categories between February 2004 and January 2005, the period for which data are made available—the marginal decline in some categories (like the incoming minutes to BSNL’s fixed lines in the 50-200 km range) is made up by an increase in others.

Even if you leave aside the issue of Trai’s bias—such as pursuing BPL Mobile till the Supreme Court for not filing a promotional tariff with it and issuing five letters to the Tatas on their Walky phone while refusing to move on the Reliance Infocomm ADC’s controversial matter—the issue of inconsistency is really serious as it unnerves investors as it just makes the operating environment that much more uncertain.