Reliance Infocomm: Robbing The Poor To Pay The Rich

THE 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.”


While 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.


Meanwhile, 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.

The 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.

The 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.


Apparently, 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.

Reliance’s 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?


The 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, they paid the license fee from the money they had collected from the subscribers and not from their own capital resources.

Both 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.