Rural Teledensity, ADC And Maran’s Flat Rate For Long Distance Calls

THE telecom scenario is currently seeing two policy changes that could mean worsening of the already poor rural teledensity figures. The gap between the urban and rural areas is widening rapidly; while teledensity is increasing
rapidly in urban areas, the increase in rural areas is actually slowing down. The pace of installing of new lines in rural areas has come down and the mobile phones have negligible coverage in rural areas. In such a scenario, the focus of telecom policy should be how to redress of this growing imbalance. Instead, the thrust of TRAI in its recent Consultation Paper on Interconnection/Access Deficit Charges and the Maran’s argument of a flat rate for calls all over the country will only worsen the sharp imbalance between urban and rural teledensities.


Before we look at the proposals that are on the anvil on both these counts, let us take a quick look at the rural teledensity scene. TRAI’s earlier paper on rural teledensity had brought out that the gap between rural and urban teledensities have been widening rapidly.

Source: Indian Telecommunication Statistics 2004, DOT & TRAI Telecom Service Performance Indicators June 2004


It also showed that the installation of Village Public Telephones has come down from around 60,000 in 2001-02 to about 15,000 in 2004. The rural lines added in the same period have also dropped from about 2.3 million in 2001-02 by about 40 per cent. In the same period the mobile “revolution” has passed over the rural areas and the smaller towns. As the table below shows, the rural areas have virtually no coverage and only cellular networks cover about 1700 towns out of 5,200 towns in the country.



Table 1

Coverage of Mobile Networks (Population Coverage 20 percent)























out of 5200

























While the mobile operators have made commitments for increasing penetration, it is unlikely that they will go beyond towns, a large number of which are yet to be covered.


The mobile operators had no obligations to provide rural telephony. This was the obligation of the Basic Service Operators. From the very beginning, the Basic Service Operators have refused to fulfil their obligation of providing 10 percent rural telephones, paying a small penalty instead. Both TRAI and DoT have willingly connived with the Basic Service Operators allowing them to get away with this flagrant violation of the license terms and conditions. The Table below shows the extent of this violation.


Table 2

Percentage of Rural lines in total Fixed Lines provided by Fixed Operators as on 30th September 2004








of the Circle/ Service Area





of  Fixed Wireless Lines in Operator’s Fixed Lines





of Rural lines in Operator’s Fixed Subscriber  Lines










India (except Delhi and Mumbai)




















& Mumbai




















Madhya Pradesh, , Tamil Nadu, Karnataka, Haryana, Chennai




















Mumbai, Andhra Pradesh, Tamil Nadu, Chennai, Karnataka, Delhi, Gujarat




























































Circles except Assam and North East



































Source: TRAI’s Consultation paper on Interconnection Usage Charge Review, 17th March 2005



The figures are quite astounding. Not only have the Basic Service Operators not provided rural telephones, bigger the player, the smaller the rural telephone lines they have provided. Major players like Reliance and Tatas have not even
provided fixed lines. They have preferred to use the Wireless route in order to keep their capital costs low and attack the high–end market. As against less than 1 per cent rural telephones being provided by private Basic Operators,
fully 35 per cent of state-owned BSNL lines are in rural areas.
Obviously, without BSNL, we would not have any rural phones in the country.





It is in this context that we have to look at the Access Deficit Charge and the move towards flat rates. First, what is an Access Deficit Charge? Clearly, there are higher capital costs in providing telephone lines to rural areas with low
population density and providing it where the population density is high. Rural telephones also have a much lower number of calls normally and this means that the revenue they generate is also low. The Universal Service Levy is supposed to meet a part of the cost of installing new rural lines while the Access Deficit is supposed to take care of the lower operating revenues that the rural lines generate as well as cover some part of the uncovered capital costs.


The Access deficit is however not only for rural areas. Even in urban areas, there are a large number of subscribers who receive calls but do not originate many calls. Typically, about 20 percent of the subscribers generate 80 percent of the revenue in the telecom system. Such high-end consumers use long distance – both in the country and outside – and this is where a major part of the revenue in the system originates today. It is these high-end consumers who need to cross-subsidize the low-end and rural subscribers.


It may be asked why should the high-end subscriber bear this burden? The answer is very simple. Unless telecom network expands, even the high-end subscribers may not have many people to call. It is therefore in the interest of the high-end subscriber also that the telecom network expands and he/she pays the cost of this expansion.


Unfortunately, TRAI views ADC as a temporary phenomenon and looks to “rebalancing” of tariffs to take care of lower revenue being generated from the low-end subscriber. Shorn of verbiage, it means higher rates for rural areas and low-end subscribers.


The Consultation on ADC Paper talks about various possibilities, one of which is to provide a share of the ADC to other Basic Service Operators. This is an astonishing suggestion as the Basic Service Operators have not met any of their rural targets and are also providing largely wireless fixed lines. They are clearly concentrating on the well-off high-end subscribers. That they should be asking for a share of ADC is asking to be paid for committing fraud! That
instead of discussing how to force the Basic Operators that they meet their license obligations that TRAI should be even countenancing such proposals is difficult to understand. In any case, there is no justification of providing ADC
to basic operators who are violating their license terms and conditions and are also not providing fixed lines.


The other proposal that TRAI has periodically floated is to merge ADC with USO and go for a revenue sharing arrangement. ADC today comes from long distance calls and is paid by the subscriber, either here or abroad. Making it a revenue share of the operator, defeats the purpose of ADC, which is to have the high-end subscriber pay more than the low-end one. In an earlier period, it was always the long distance revenue that was used to expand the network. Long distance calling rates, both national and international, have now dropped drastically. There is no particular reason to unburden them even further. If we allow the merging of USO and ADC levies in a revenue share, all that it means is that BSNL will pay the largest amount to the kitty and get back some part of it. The issue here is not revenue share but recovering the difference of the capital and operating costs of connecting rural and low-end subscribers from the average costs. Earlier also, we had argued that revenue sharing is easy to implement but does not focus on the specific problems of either USO or ADC. We also do not accept that “rebalancing” should cover the deficit that exists between servicing rural and low-end subscribers by increasing their rentals and calling rates.




We have no quarrel with revenue sharing per se, but unless TRAI makes clear how they propose to cover the deficit discussed above and in their consultation paper, such a step will only lead to BSNL being forced to carry all the rural
burden while allowing the private players to cherry pick – provide phones only to well off subscribers and service only in high density areas. The deficit even by TRAI’s calculations is Rs 5,000 crore. According to BSNL, the actual
deficit is much higher. Even if we accept the much lower TRAI’s figures, this would amount can be realised by about a 8 per cent share of revenue of all operators. If this happens, then the largest amount in this 8 percent will come
from BSNL. Assuming that BSNL will require to be paid the ADC of Rs 5,000 crore, then the BSNL will pay to the ADC kitty will Rs 3,000 crore and take from it Rs 5,000: it gets only Rs 2,000 crore! If we want the difference to be Rs 5,000 crore, then the revenue share will be much higher. The second problem that needs to be addressed that we will not recover the ADC from long distance calls as we are doing now and this amount then will have to be recovered from all calls pushing up the cost of local calls. Lastly, this step will increase the profits of international carriers as they do not have to pay either ADC or a revenue share.


Maran’s proposal for a flat rate is also flawed for similar reasons. Yes, flat rate for all calls is the long-term direction in telecom, as this is the model that Internet follows. With long distance traffic moving to voice over Internet, it is true that at some point we will have to shift from a distance based tariffs to packet size based tariffs or just connected minutes. But do it now is to jeopardise rural telephony which is already getting the short end of the stick.


TRAI and DoT both do not act when private players flout their license terms and other orders. It is now clear that Reliance that hiding Caller ID and not paying ADC was sanctioned at the highest levels in Reliance. This was a criminal offence as it is wilful fraud. Yet, all that Reliance has got is a gentle rap on the knuckles for doing what would have put any ordinary person behind bars. TRAI was not even willing to address this issue claiming that a violation of ADC was a matter of dispute between operators!


Both the proposals of revenue share and flat rate will lead to pushing up the cost of rural telephones and local calls. Unfortunately, people do not understand that this is the neo-liberal agenda: make the poor pay more while  rewarding the rich. And this is the road that both DoT and TRAI are travelling. These are schemes to help Bharati’s and Reliance Infocom, while the rural subscribers continue to languish.