Now complete the job

It was a foregone conclusion that the Telecom Regulatory Authority of India (Trai) would reduce (as it did last week) the access deficit charge (ADC), or cess, that is collected from users of telecom services and paid to the state-owned Bharat Sanchar Nigam Ltd (BSNL). This was because the ADC regime was always meant to be a transitional arrangement. Indeed, the surprise is that the review took so long, since it was clear that BSNL was not using the period of the ADC cushion to hike tariffs/rentals for local calls to near-cost while reducing the fat margins on long-distance calls. Indeed, it was alleged that BSNL was using the ADC funds to compete in other areas such as mobile telephony, in other words using the ADC money to compete against the firms paying it the money! But Trai never carried out a detailed admissibility test to see if BSNL genuinely needed the funds; indeed, the latest order confirms this has still not been done. Nor, surprisingly, does the Trai order talk about what needs to be done about the excessive ADC that has been collected in the current year—while private operators say an extra Rs 2,700 crore has been collected in 2005-06 itself, Trai’s order admits to at least Rs 1,000 crore of extra ADC collections on account of incoming overseas calls alone. So, if users of telecom services, especially long-distance ones, welcome the cut in long-distance tariffs that will follow once the new order gets implemented next month, they’d do well to make a note of the few thousand crores they are expected to pay out to BSNL in 2006-07 as well. Of the Rs 3,200 crore that BSNL will get as ADC payments in 2006-07, just Rs 395 crore will come from payments made by BSNL’s own subscribers while the rest will come from those using mobile phones, or calling India from abroad.

The move towards a revenue-share-based ADC in place of the specific one existing so far has been justified on the grounds that it will reduce arbitrage opportunities of the sort that led to the Reliance Infocomm ADC-avoidance game of switching numbers to disguise overseas calls as local ones. The problem, however, is that the proposed revenue-share system does not apply to international calls, where the ADC is expected to be higher than even the total value of calls. And while it is true that arbitrage opportunity has been reduced, with the ADC on incoming overseas calls being halved from Rs 3.25 a minute, the proportion of grey calls will fall only if Indian firms pass on this reduction to overseas carriers. If the reduction is not passed on, the effective arbitrage remains unchanged and so, logically, should the proportion of grey market calls. The last time the ADC was reduced on international calls, the reduction never got fully passed on and so the grey market didn’t decline either.

The other area where Trai has displayed a Nelson’s eye is that of long distance tariffs. An overseas call from a mobile, for instance, is billed at over Rs 14 a minute today while the cost cannot be more than Rs 4-5 a minute. Clearly the market’s not working, and Trai should be addressing the issue.