The TRAI order permitting basic service operators to hike the rental and reduce uncharged calls created a furor in the country. The Government of India took the populist decision of not allowing an increase in the rentals, and BSNL said it would incur deficits as it was providing below-cost service to many to make telephones affordable. The TRAI revisited its decision to come out with a fantastic estimate of Rs 13,000 crore as the access (just connecting customers to the network) deficit (year 2002). It devised the interconnection usage charge (IUC) mechanism to arrive at the figure. However, the access deficit is largely exaggerated, as the mechanism used to arrive at it is erroneous.

The state-run BSNL (along with MTNL) is an integrated services player operating all over India, whereas its rivals, the private-sector telcos (P-telcos) are having one license each for a service and even for a circle. The former can therefore subsidize some non-remunerative services in low-yield circles from some high-yield services in lucrative circles. The P-telcos, on the other hand, don’t have that privilege and hence don’t have a level-playing field. The sooner the inequality is removed, the lesser will be the litigation and more truthful will be fair competition.

While BSNL is making profits in spite of corporatization and competition, private cellcos have accumulated losses of over Rs 7,100 crore on an investment of Rs 25,000 crore Dr TH CHOWDARY

While BSNL/MTNL has been making profits in spite of corporatization and competition, the private cellcos have accumulated losses of over Rs 7,100 crore on an investment of Rs 25,000 crore and barring one or two, none is having cash surpluses.

Almost all capital assets of BSNL/MTNL have been built by their subscribers, who have paid far above the cost of services. A rough estimate would be that out of about Rs 110,000 crore book value of assets, about Rs 100,000 crore has been contributed by customers. BSNL/MTNL don’t pay any dividend to customers. They don’t even reduce the cost of services and give consideration to the capital that customers have been contributing.

BSNL made a profit of over Rs 6,000 crore in fiscal 2002. TRAI’s figure of access deficit of Rs 13,000 crore, for BSNL/MTNL, and BSNL’s profit would add to Rs 19,000 crore. With such super-profits, how can BSNL be given any compensation for deficit on one of its several services?

Moreover, if a company is compensated for its deficits, what incentives has it got to cut costs, improve efficiency and eliminate ineffective work? BSNL and MTNL have brilliant engineers; what they lack is expertise in management, accounts, financing and marketing and human resource development. If they incur losses, that may be a challenge for them to improve, to reinvent, to restructure and rise like a phoenix. The TRAI and the government must give that challenge and chance to BSNL/MTNL and not pamper it to be a crybaby forever. BSNL is already showing its strength by the way it is gaining mobile subscribers for its cellular service. For example, within months of the launch of its cellular services, the operator has become the No. 2 cellular service provider in the country, crossing subscriber numbers that took more than five years for its private company rivals to achieve.

There are about 40 million direct exchange lines for BSNL. Out of these, about 8 million are in rural areas. A Universal Service Fund is already there to subsidize the rural subscribers, put and maintain village public telephones, and so on.

Therefore, these 8 million lines should be excluded from any scheme of access deficit calculation and compensation.

The government has raised the service tax from 5 percent to 8 percent. This amounts to an extra inflow of Rs 1,200 crore on the 40 million connections now. It will go on adding an estimated 15 million subscribers (fixed and mobile) annually. The government is taking a revenue share, part of which is transferred to the Universal Service Fund. I can forego a further portion of its share as access deficit compensation, if and when it has to be given.

Also, since more and more new additions will be through WLL, the access deficit will fall, and therefore, a forward-looking LRIC method of costing must be adopted.

The access deficit, at best, seems to be a myth. For a hugely profit-making BSNL it seems to be a mechanism to ensure that ‘where there are surpluses I keep to myself; where there are deficits let my rivals make them good for me’. This approach should certainly not be countenanced by TRAI. 

Dr TH CHOWDARY
The author is IT Advisor, Govt of AP