Reliance Infocom: Robbing The Poor To Pay The Rich

People’s Democracy

Organ of the Communist Party of India (Marxist)


No. 49


Infocomm: Robbing The Poor To Pay The Rich



Consultation Paper by the Telecom Regulatory Authority of India (TRAI) on rural
telecom services has brought out clearly that the rural telecom penetration is
slowing down and the gap between rural and urban Teledensity is widening very
fast. The entire raison d’etre of introducing competition in basic services in
1994 was bringing additional resources into expanding the network to connect all
the villages and provide phone on demand by 1997. Even
after nearly 10 years, the number of villages without telephones is more than
85,000 and the waiting list in the semi urban areas is more than 4 million. Even
worse, the rural urban ratio is of the order of 1:11 today from the earlier one
of 1:3.
Obviously, the opening up of the basic services, instead of adding
to resources for rural telephony, has concentrated resources on the more
well-off consumers and urban areas. This is exactly what we had predicted when
basic services were being opened to competition, which has now been corroborated
also by TRAI, “The prime reason for slow-down is apparently the increased
focus on cellular mobile infrastructure deployment after 2001-02 and reduction
in fixed line and rural investments.”





the Consultation Paper notes that the service providers have not fulfilled the
terms and conditions of their licenses regarding rural telecom, there is no
suggestion there that this an issue that need to be addressed. The number of
VPTs provided by all the private service providers is only 12, 772. Rural DELs
are also well below the mandated figure of 10 per cent of all DELs to be
provided being rural. The TRAI has not
addressed the issue of what steps need to be taken make the service providers
meet their license terms and conditions.
We have on good authority that
these service providers have taken legal opinion that if they pay the penalty,
then it is legally permissible for them not to meet the service terms and
conditions. Of course, they also believe that the DoT and TRAI will not move to
cancel their licenses for this violation. Given that the country needs rural
telephony urgently to narrow the increasingly dangerous rural urban divide, it
is surprising that the TRAI’s Consultation paper makes no effort to address
this obvious problem. Given the nature of the offence, punitive damages for a
wilful violation of the license terms and conditions should be levied on these
service providers. The current penalty was a good faith penalty and was
considered if the service provider was slow to fulfil its obligations. The same
penalty cannot be considered when there is an obvious and mala- fide intention
not to fulfil the terms and conditions of the license.




the other issue of telecom reforms, the Access Deficit has also come to the
fore. The fraud being committed by Reliance Infocomm in disguising long distance
calls as local calls has now become public. The Access Deficit arises in a
network as the cost of connecting the subscriber physically to the local fixed
network is about Rs 16,000, and this network also higher operating costs. The
long distance network, in contrast, has only a cost per subscriber of only about
Rs 3,000. However, the long distance calls cannot take place if subscribers at
the both ends are not connected: the local network is required to complete the
long distance calls. For the growth of telecom network, it was felt that the
cost of accessing the network should be low – low installation charges and
rentals – while long distance calls should be charged higher rates to
partially meet the cost of expanding the local network and some of its operating
costs. With unbundling the network – separating the local, long distance and
international portions of the network – the question was either the local call
rates/connectivity costs had to rise, or a part of the local network costs
recovered from long distance and international calls. Initially, the local costs
did rise while the long distance costs came down. However, protests from
consumers and political parties meant that this could not continue indefinitely.
Instead, the Access Deficit Charge (ADC) was conceived to meet this shortfall.


Access Deficit calculations went through a fairly tortuous process in which,
initially TRAI had proposed a very high figure – Rs 13,000 crore – to be the
access deficit. They had also put in place a regime that collected this access
deficit when calls were made from one network to another, and therefore through
very high interconnect charges. At that time, some of us (Delhi Science Forum)
had pointed out that the computed access deficit is too high and should be of
the order of Rs 5,000 crore. We had also suggested that instead of a high
interconnect charge, it should be collected from each call, irrespective of
whether it is between networks or within the network. TRAI subsequently reworked
their calculations and brought down the access deficit close to what Delhi
Science Forum (DSF) had suggested and also put in place a regime that removed
the ADC from interconnection to the calling charges. Currently, TRAI is
exploring the possibility of collecting the ADC as a revenue share of the
operator and thus simplify this even further. In the long run, it is also
proposed to merge the ADC with the Universal Service Obligation Levy, which is
meant to expand telecom network in areas that are not covered today.


Access Deficit Charge is therefore vital to keeping the cost of connecting to
the network low. If the local network connection costs go up, it is unlikely
that the fixed line growth would continue as connecting to the network would
become too expensive. Therefore, if we recognise the importance of telecom to
our economic well being, we should, as a policy, continue to keep low access
costs for the network. However, this does provide the unscrupulous with the
possibility of disguising the origin of call and make it appear as a local call.
By this, they can avoid paying the ADC, which is Rs 4.25 for International calls
as against 0.80 for long distance and 0.30 for local calls. A number of people
wanting to make fast buck, install hardware that changes the caller ID, and then
use it in conjunction with groups abroad to offer cheaper international calling
facilities. The receiving network then sees the international calls as only a
local call and the unscrupulous operator can pocket the difference – Rs 3.95
per minute. A number of such persons have been caught and all such cases have
attracted penal provisions: this is deliberate and criminal fraud and these
activities have been treated as such by the government.




what is a crime when committed by smaller players becomes a “dispute” in the
eyes of the TRAI and only a commercial issue with the government. Report
indicate that Reliance Inforcom had 10,000 lines each in Delhi, Mumbai and
Chennai dedicated for incoming ILD calls from the US and Canada. These were then
used to connect to MTNL and BSNL subscribers after changing the caller ID,
exactly what others against whom criminal cases were launched had done. If we
use the same calculations that DoT uses against people who operate such illegal
exchanges, the loss to BSNL and MTNL is of the order of Rs 1,300 crore. However,
the government till date, has treated Reliance with kid gloves: it has not filed
any fraud charges on Reliance and has asked for paltry penalty of Rs 150 crore.
MTNL and BSNL have also filed claims of Rs 254 crore and Rs 309 crore on
Reliance. At this point it is not clear whether the DoT’s penalty of Rs 150
crore is in lieu of or in addition to the claims made by BSNL and MTNL. Even if
it is in addition to MTNL and BSNL’s claims, it is clear they neither cover
the full amount of Rs 1,300 crore that Reliance is liable for nor do they
address the question of criminal fraud that Reliance has indulged in.


defence is that they were using a prepaid calling card in the US and Canada and
they were entitled a Home Country Direct service, which was not covered by ADC.
This is a specious argument as no Home Country Service can bypass the status of
a call originating in the US to India from that of an international long
distance call. And if it is legal as Reliance is claiming, why then disguise the
caller ID to make it appear that it was a local call? Also, why have they
discontinued this practice after they were caught by BSNL and MTNL?




interesting point here is that TRAI, who should be clarifying this issue, have
instead taken refuge in that this is a dispute and therefore outside TRAI
purview. There has been questions on TRAI’s handling of Reliance even earlier,
when Reliance had violated the provision of the WiLL service, which was meant
only to provide single cell mobility. Reliance, instead, converted this to a
fully mobile service using various subterfuges and continued this for 18 months
till forced to abandon this by TDSAT, the dispute settlement body. It had been
argued then TRAI was soft on Reliance and had permitted Reliance to do this
knowing full well that this was a violation of its order. The final fine for
this violation was a paltry Rs 485 crore. Reliance, by that time, had mopped up
a large mobile subscriber base, promising them much lower rates and avoided
paying up front license fee payment unlike all other operators. In other words,
paid the license fee from the money they had collected from the subscribers and
not from their own capital resources.


the violation of the license terms and conditions and bypassing the ADC regime
by Reliance, are issues that touch the common subscriber. In both cases, the
victims are either rural telephony or the low-end subscriber.

That neither the TRAI nor the government is overtly concerned with these issues
show their priorities. For them, helping the private operators and well-off
subscriber are the priorities. This is in tune with their attempts to allow
increased FDI limits so that existing license holders can sell their license for
windfall profits. As has been commented by one magazine, this is a policy of
reverse Robin Hood, rob the poor to pay the rich. It is time the government
takes a long hard look at their priorities in the telecom sector if this state
of affairs is to be reversed.