With a view to address issues like promoting competition, removing market distortions, minimizing gray market in international calls, and providing comprehensive benefits to all consumers, Trai issued the ninth amendment to the interconnection usage charges (IUC) regulation. The amendment deals with the access deficit charge (ADC) payable by private service providers to BSNL. The process of review and consequent amendment has lead to the simultaneous issue of a set of recommendations to DoT for continuation of support to BSNL's rural wireline network through the universal service obligation fund (USOF).

While private telecom operators stand to collectively save around Rs 800 crore in the next fiscal as a result of the move, the impact at the consumer end will be just a marginal lowering of tariffs.

In a letter to Siddhartha Behura, secretary, Department of Telecommunication, Nripendra Misra, chairperson, Trai, wrote: “ADC regime was put in place by Trai in 2003, through its Interconnect Usage Charge Regulations, to compensate the incumbent for rental/local call charges and any other below cost tariffs, with the objective of making the basic telecom services affordable to the common man and promoting both universal service and universal access. ADC, however, cannot be continued in perpetuity without causing distortions in the market and putting undue burden on consumers.”

The ADC Regime
The authority first introduced the ADC regime with its regulation on IUC in 2003. ADC was critical in the early stages of transitioning smoothly from government monopoly to a liberalized competitive environment. The primary purpose of the ADC regime has been to facilitate the incumbent to transit from monopoly to a competitive regime and give adequate time for tariff rebalancing. In keeping with the worldwide trend and sound economic principles, the authority established a time-bound ADC regime that would eventually be merged with USOF.

ADC, as it exists today has two parts: One, service providers pay 0.75% of their adjusted gross revenue (AGR) to BSNL and second, international long distance service providers pay one rupee per minute on international incoming calls to BSNL. Through the amendment, the authority decided to phase out ADC as a percentage of AGR from April 1, 2008. Thus, ADC will no longer be applicable in the domestic sector and all domestic calls will be free from the incidence of ADC from that date. The component on the international incoming calls would be payable at a reduced rate of Rs 0.50 for the period from April 1, 2008 – September 30, 2008 after this component of ADC would also stand phased out.

A Bharti Airtel spokesperson said, “As a leader in the telecom sector, we are committed to pass on the benefits of ADC relief to customers, primarily in rural areas as desired by Trai. We are delighted with the government's focus to further improve rural teledensity. As a company, we have already taken several measures toward increasing penetration of telecom services in rural India by taking our services to over 3.2 lakh villages.”

Varied Viewpoints
Trai is of the view that ADC puts unfair burden on new entrants and distorts market conditions. It is also a source of arbitrage, and thereby results in gray market operations in international incoming calls. But one should also keep in mind that support to the incumbent may be necessary for their rural wireline operations as about 99.87% rural lines belong to BSNL, and this legacy fixed wireline network is an important national asset that offers a number of advantages. Digital Subscriber Line (DSL), the current dominant broadband technology, works on copper and would also ultimately be the key to pushing forward broadband penetration.

Though proliferation of broadband in rural areas will take some time to build-up, when it does, BSNL may be able to increase ARPU by offering value added services like IPTV, telemedicine, e-learning, among others and making these lines self sustaining. To make this happen, it needs to be ensured that wireline connections are supported and their maintenance is taken care of through an appropriate subsidy. The authority has, therefore, decided to recommend to the government that an amount of Rs 2,000 crore per annum may be given to BSNL from USOF as subsidy for sustaining wirelines installed before April 1, 2002 for a period of three years. Senior BSNL officials said that they may contest Trai's decision to abolish ADC.

Trai has also noted that it is difficult to establish a direct and transparent nexus between savings on account of ADC and reduction of tariff. It stated that while mobile operators have contributed to enhanced level of competition in the local call segment, as far as long distance calls are concerned, competition does not appear to be very effective despite several favorable regulatory and policy measures. However, the authority expects that service providers will utilize savings that accrue from phasing out of ADC for the overall growth of the telecommunications sector, especially for rural areas still awaiting concrete steps from service providers.

Trai is also actively considering cutting start-up expenses for new rural subscribers. The authority has decided to defer any proactive measure and it will evaluate the proposals of telecommunication companies.

Sharing his views on the abolition of ADC, Puneet Tiwari, director, ISPAI, says, “With Trai recommending abolition of ADC from April 1, 2008, it becomes more relevant for the government to allow terminations of unrestricted Internet telephony/VoIP call to PSTN/GSM/CDMA network, with mutually agreeable terms and conditions among service providers. It will not only provide a cheaper alternative means of communication to the public, but will also help in curbing the gray market and increase competition. It will also be an extra source of revenue for all services providers (ISPs/PSTN/GSM/CDMA) as well as for the government in terms of service tax, AGR, etc.”

Adding twist to the abolishment of ADC, BSNL's union is of the view that the BSNL management, in the past, did not raise any strong voice before TRAI or respond to TRAI consultation papers on the issue. When this came to light, BSNL employees' union forced the management of BSNL to place its argument this year. VAN Namboodiri, secretary, BSNL employees' union, said, “BSNL used to get Rs 5,000 crore from ADC. Last year, it was reduced to Rs 3,000 crore. Now Rs 2,000 crore is recommended from USOF. The amount is meager in comparison to the loss involved. Even the subsidy is recommended for three years only while the requirement will continue thereafter.” The union has also some fears regarding the USO Fund, as it is managed by a separate authority. It is not sure whether they would abide by TRAI recommendations.

India is the world's fastest-growing market for wireless services, and is expected to surpass the United States for the second spot to become the world's second-largest wireless market after China. And moves like this are going to bear fruits in the long run for the telecom market.

Sandeep Budki
sandeepb@cybermedia.co.in