People’s Democracy (Weekly Organ of the Communist Party of India (Marxist)

Vol. XXVII No. 26 June 29, 2003

Poor Teledensity: A Recipe For
Backwardness

Prabir
Purkayastha

THE
telecom sector, vital for the economic growth of the country is now entering a
phase where the well off subscribers bills are being reduced, while the pace of
telecom penetration reduces. The last year has shown that the new lines added in
basic services –landlines – have been less than half that of earlier years.
BSNL, the major landline operator has seen a huge number of phones, estimated to
be of the order of 2.5 million being surrendered. If this continues, increasing
telephone coverage (Teledensity) will not go up from its low figure of 4 to 15
by 2012 as projected. Even more worrying is that while cellular lines are
growing, the landline penetration is not. Obviously, the well-off subscribers
already using landlines are pushing the cellular market, while the number of new
users is not increasing commensurately.

The
telecom sector has seen major upheavals in the last few years. Neither the
National Telecom Policy of 1994 nor the New Telecom Policy of 1999 has clarified
matters. Worse, the Regulator is now playing second fiddle to the government on
issues such as inter-connection charges, local mobility through Wireless on the
Local Loop (WiLL) and the attempt by Reliance to make it into a cellular
service, and other issues. Amazingly, the ministers concerned, first Pramod
Mahajan and then Arun Shourie, have been organising meetings with all the
service providers without the presence of either the consumers or the regulator.
In any other country this would be considered as attempting to form a cartel and
penalised. Here the ministers are leading this activity, bypassing both the
consumers and the regulator.

DECLINING
GROWTH OF
TELEDENSITY

It
is not surprising that at the end of the day, the users of landlines are seeing
a sharp increase in their charges. Both the cellular lobby and now the WiLL
lobby are picking the pockets of the landline users, with the active help of the
TRAI and the ministers of Telecom. Worse, the surplus for expanding the basic
network is steadily declining. The network expansion that was of the order of
22-23 per cent in the 90s has already dropped to about 16-18 per cent in the
last two years. If the surplus declines further, as it is likely to after the
latest TRAI decisions, the expansion of the network is going to decline even
more. Increased competition, it is now apparent does not increase Teledensity.

DELs and Cellular Lines 92-02

Note: Figures taken from DOT’s Annual Report and COAI’s figures,
websites www.dotindia.com and www.coai.com.
Some of DOT’s figures have been modified by COAI figures.

The
critical issue in the telecom sector was identified in NTP 94 as poor
Teledensity and rural connectivity. Cutting the private parties in was
supposedly for increasing capital investments, particularly in rural areas.
Telephone on demand and connecting every village by telephones by 1997 was the
aim of 1994. Instead, the private operators have concentrated on providing
phones only to the rich subscribers and have flatly refused to provide 10 per
cent rural telephones stipulated in their license conditions. The basic service
operators have provided only about 7,000 phones as against their commitment of
100,000 rural phones. The total number of telephones provided by all the basic
private service providers is 1.07 million (March, 2002). BSNL and MTNL have
added more than 20 times that number telephones in the same period, (22.986
million, 97-02).

If
we look at the economics of the telecom network earlier, it was the surplus of
the long distance network – both national and international long distance –
that was providing the capital for expansion of the telecom network.
Incidentally, the total budgetary allocation in the last 50 years for telecom
from government’s funds for expansion of the telecom network is negligible:
against the market value of its assets of about Rs 80,000 crore (at current
replacement costs), the funds from the Government is less than Rs 200 crore. The
entire expansion of the sector has taken place through the surplus generated
from long distance calls.

The
entire thrust of the earlier policies was to keep the cost of connecting to the
network low and charge higher rates from long distance calls. The understanding
was that the surplus from long distance calls, which are made by either business
or well-off subscribers, should be used to expand the network. It can be argued
that the long distance calls were being charged at an exorbitant rate and these
rates need to come down. However, arguing for competition in long distance meant
that the local calls and the cost of connections would increase, as the long
distance operator would no longer underwrite the expansion of the basic network.
Even after this, the surplus with the local operator would not be enough to
expand the network substantially. And this is what the current scenario
suggests. So when Arun Shourie suggests that not increasing the rates as allowed
by TRAI will lead to BSNL’s surplus disappearing he is not wide off the mark.
What he neglects to tell us that is precisely the objective of the BJP’s
current policies. Opening the long distance to competition and handing over the
most lucrative part of the network to – VSNL to Tata’s – was meant to
reduce BSNL’s surplus while handing over the most profitable sectors of the
network to various private operators. 

DISAPPEARING
SURPLUS

If
the surplus disappears from BSNL’s account, what happens to the twin goals of
increasing Teledensity and rural telephony, allegedly the reason for private
participation in the first place? Some have suggested that the Universal access
levy will take care of rural telephony. The figures suggest otherwise. Last
year, BSNL suffered a loss of Rs 3,000 crore on its rural network. The entire
Universal Access levy amounts to only Rs 1,300 crore, and even in this only Rs
300 crore has been given to BSNL. So obviously, the current provision of
universal access does not cover even the current pace of expansion of the rural
network, let alone the requirement of connecting all the villages in the near
future. And if the surplus disappears, the only way to expand the network will
be through borrowings at commercial rates of interest, pushing up the costs and
finally the subscribers’ rates.

The
latest TRAI’s Consultation Paper on Interconnect Charges brings out the
problems with the current telecom policies. TRAI has calculated that the
landline operators have a deficit of Rs 13,000 crore currently based on the
current rentals and call charges. One may question whether this deficit (called
Access Deficit) is as high as TRAI has projected, but there is little doubt that
after reducing long distance charges, there is now increasing pressure of
raising the local call rates and rentals to cover this deficit. It substantiates
what we have said all along that the current path of telecom development would
lower the rates of well-off subscribers and raise the rates for the low-end
consumers.

The
TRAI has attempted to cover this access deficit of the local network by imposing
high interconnect charges. The net result of this is that now there is an
enormous advantage of restricting the calling to one operator who then do have
not to pay interconnect charges. Already, Reliance has offered very low rates to
corporate houses who are taking a large number of connections so that they can
restrict their calling each other only to the Reliance network. The high
interconnect charges therefore will see a large number of corporate subscribers
desert the local operators unless hey are offered similar terms. Trying to
compensate the fixed line operators of their drop in long distance revenue by
high interconnect charges do not seem to be practicable either.

Are
their alternative ways of covering the access deficit? A simple way would be to
introduce differential rates for peak time and off peak time rates. By this, the
domestic consumer can have low calling rates if he calls at night or in the
mornings while the business consumer would pay for higher peak time charges.
This is also eminently fair, as the peak time user is the one who causes the
congestion in the network and the need of the network to be upgraded. The
second, is to not charge the interconnect based on calls but introduce it as a
capital cost in the networks: each operator has to bear this cost and not the
subscribers. This will ensure that whether the call is limited to his network or
across two networks, the cost of the call remains the same. This will eliminate
attempts to offer attractive rates for restricting the calls to one network.
Finally, TRAI has to move for a single license for the operators and leave the
technology choice cellular, WiLL or fixed landline to the operator. This will
ensure that the call rates are uniform and not have the kind of complexities we
are seeing with multiplicity of operators separated in different types of
regimes.

It
can of course be argued that cellular services should no longer be looked at as
premium services. Given the costs of the cellular network, which is roughly of
1/5th that of the landline cost per line, there is a strong argument for not
regarding cellular services as a premium service. In that case the cellular
rates have to come down substantially, and be in line with the landline rates.
In such a scenario, the calling party pay regime and equitable interconnect
charges would be simple. It is having a high cellular charge as well as asking
the landline subscriber to bear this burden when she calls the cellular
subscriber that is patently unfair. And it is this policy that TRAI has
introduced which will push up the bills of the landline subscriber.

INCREASING
RATES

The
last few years have seen the rates of landline subscribers go up through a
variety of means. One is reducing the pulse rate from 5 minutes to 3 minutes.
Another is increased rentals and reducing free calls. The last has been the
imposition of a Calling Party Pay regime through the interconnect charges by
which the call of the landline subscriber to a cellular one is charged at a high
rate. In effect, the low-end landline user is being asked to subsidies the more
well off cellular services.

We
are reducing the surplus of the long distance network without any considerations
of how we will find the money for expanding the network. And if the local call
charges go up as they are doing, this will mean that either the Teledensity will
go down because the local service providers will not have any surplus or the new
subscribers coming into the network will drop as the people will not have money
to pay for the phones. There is an obvious relation between the cost of
connecting to the network and the per capita income of the population. If the
cost of accessing the network is high as a proportion of the per capita income,
then also Teledensity is low.

If
local network is treated like any other commercial activity, the service
providers can set high tariff and generate high profits. In such a scenario, the
Teledensity is bound to be very low. Sahel region in Africa, one of the poorest
regions in the world has the lowest Teledensity and has one of the highest
profit per subscriber in the world. So if Teledensity is the objective, we are
looking at keeping the access costs low and realising the revenue from those who
the network intensively. Instead, the current policies, while paying lip service
to Teledensity is putting in place a set of policies that will progressively
slow down telecom penetration. The well off users will benefit as the long
distance rates come down, but the price will have to be paid through lower
Teledensity. That this is already happening is clear from the table given
earlier: the lines added by BSNL and MTNL in 01-02 were less than half that
provided by them in 00-01. The warning signs could not be louder.

The
future of BSNL is critical for the country. This is not only an issue of
privatisation but of increasing telecom penetration in sectors and areas where
without BSNL, there will not be telecom access. The private operators will go
only there where they can make profits. They will neither go to rural areas nor
provide telephones in those areas that are economically backward. Similarly,
providing phones in far flung remote areas do not make commercial sense for
private operators. However, if these areas are not connected by telecom
services, we are condemning them to continued backwardness. For all these
sections, BSNL provides the only hope as also its continuation in the public
sector.

The
attraction of privatising BSNL is of course great. At one stroke its huge assets
can be given away. Its huge assets and surplus can then be used to fund the
friends of the government in the private sector. Stiglitz, the former Chief
Economist of the World Bank has called this privatisation programME as
briberisation; and this is exactly the nature of the game that the BJP
government is pursuing. The employees of BSNL have the task of not only
competing with the private sector, but also making people of this country aware
of the need to have BSNL and MTNL in public hands. It is this unity – between
the employees and the people — that we have to create in order to beat back the
current right wing offensive. It is not only saving assets built using public
money, but also the economic future of the country that is at stake.