The Telecom Wars

THE tariff order of January 27, introduced by TRAI, imposes steep increase tariffs for most of the fixed line users, which will lead to a long-term adverse impact on telephone demand. The new set of telecom policies that started in 1994 was supposed to help increase telephone density in the county and spread rural telephony. The reality — after the last round of telecom wars and Ministerial/TRAI intervention is now clear. Increased teledensity is not on the agenda of either the Telecom Regulatory Authority of India (TRAI) or the government. The most charitable explanation that can be given is that the TRAI and the government have succumbed to the telecom lobbies — the private basic service operators such as Reliance and the cellular operators — and decided to hand them a bonanza at the expense of the existing fixed line subscribers.

For the low-end users, the latest tariff increase means an increase in rentals, lowering of free calls and reducing substantially the time clocked as 1 call – the pulse rate. It is now clear that competition in telecom has meant more choices and lower rates for the high-end consumer and sharp increase in costs of telephone usage for the low-end consumer. Various groups have pointed out time and again that increasing the cost for low-end consumers is squarely against the objective of increasing teledensity. If the cost of a connection through monthly rentals, free calls and local calls charges become high, then the chances are that a large number of people will consider the telephone to be a luxury and will do without it. Unfortunately, the last 5-6 years of “competition” has progressively pushed up the costs of the low-end consumer to almost 3 times of what it was, reducing sharply demand for new connections. BSNL has stated that the connections returned in the last 12 months have grown substantially and is now a cause for worry.

Regulatory Anarchy

The involvement of Pramod Mahajan in the recent telecom wars shows the scant regard that the BJP led NDA government pays to regulatory independence. Once the Cellular Operators blocked the incoming WiLL calls from Reliance, MTNL and Tatas, the Minister, it now appears, intervened to ask MTNL to turn to block all incoming cellular calls to their network. In violation of all principles of independence of the regulator, Mahajan called a meeting between the various operators and TRAI to “resolve” this issue. The consumers were of course not represented in these discussions. The net result was that TRAI issued a tariff order on January 27, that benefits the WiLL and cellular subscribers at the expense of the fixed line subscribers. In the process, MTNL was initially used to help Reliance in its battle with the cellular lobby and later its interests sacrificed after “Mahajan’s negotiations”. The poor subsidising the rich through so-called competition is the pattern of neo-liberal polices that are being practiced world over, the Indian telecom scene being no different.

The current round of telecom wars started with TRAI’s recommendation of accepting Limited Mobility through Wireless in the Local Loop (WiLL) Services sought to be introduced by the based service operators.

After exhausting their legal options, the cell operators look the same path as the auto drivers in Delhi: force through illegal action what they had failed to achieve otherwise. They blocked all incoming calls from the WiLL services leading to MTNL retaliating. That the Communications minister was willing to “arbitrate” in this “dispute” sent a completely wrong signal to all regulatory regimes: current or future. Governance is about enforcing regulatory discipline even if one disagrees with the regulator. Regulatory anarchy is unfortunately the direction that the telecom operators have taken, a course that Mahajan has encouraged by stepping in.

Before we examine the issue of fairness of the interconnection charges between cellular operators and basic service operators that the cell operators raised, we need to look at the genesis of the WiLL service. The cellular operators central argument was that if the basic service operators introduce WiLL service, this will mean allowing them back-door entry into mobile services: the basic service operators will be able to offer mobile services without paying the fee for a cellular license.

Contrary to cellular operators’ contention, the basis service tender specified that the local loop had to be either wireless (Wireless in the Local Loop – WiLL) or optical fibre. Neither the Department of Telecom nor the cellular operators realised at that time that this would allow the introduction of limited mobility in basic services. It soon became clear that if a mobile instrument was offered for WiLL, the operators would save money in the handset costs and the subscriber would gain limited mobility. The argument against WiLL then became one of denying these advantages by creating an artificial regulatory barrier. TRAI, after extensive consultations, accepted that WiLL could be introduced provided it was limited to the geographical area of one exchange (limited mobility) and not become a fully cellular service. It also agreed that the WiLL service would be considered a part of the basic services.

Question Of Interconnection Charges

The cellular operators did not focus at that time on the only argument that had some merit: the question of interconnection charges. They instead repeated their arguments that WiLL was a quasi-cellular service and should not be allowed to the basic service operators. Both Telecom Disputes Settlement and Appellate Tribunal (TDSAT) and the Supreme Court rejected their arguments and upheld TRAI’s stand. The Supreme Court however directed the TDSAT to examine the issue of a level playing field. TRAI is also examining the issues raised regarding interconnection charges and tariff structure and had promised to finish its review by the end of this month. Instead of waiting, COAI’s decision to block all incoming calls from WiLL service was tantamount to blackmailing the regulator.  That MTNL followed suit with ministerial encouragement only reinforces the tendency of the powerful to arm-twist the regulator.

Why did the cellular lobby not raise the issue of high interconnection charges? The reason for this lies in their need to keep cellular tariff high. The high cellular tariffs of three to five times of the landline tariffs are not justified either by the capital costs (capital cost per line for a cellular line is about a fourth for that of the landline) or the operating costs. The cellular tariffs have dropped dramatically in the last few years all over the world and today are even lower in some countries than the landline rates. The high interconnection charges then becomes the only basis for justifying high cellular tariffs.

The decision of the cellular operator not to focus on the interconnection charges earlier have to be understood from this point of view. Any drastic change in the interconnection charges would open the entire tariff structure of the cellular industry to a review. It is highly unlikely that the current high tariff regime for the cellular sector can be retained under these circumstances, an end that the cellular operators did not want. If the tariffs for cellular and landlines are of the same order, the question of interconnection charges can be handled far more equitably: they would either pay same interconnection charges or pay none on a Caller Party Pays (CPP) principle. By retaining high cellular tariffs, TRAI is penalising the cellular subscriber and creating artificial controversies. Converting both the cellular and basic services licenses into a common carrier license is the only long-term solution, a path that TRAI and the Department of Telecom is unwilling to take.

Problem With TRAI

The increasing problem with TRAI trying to keep two different regimes for basic and cellular services became clear when Reliance started to advertise its services as mobile services in clear violation of its license terms and conditions. Reliance is parading its WiLL services as if it is just another mobile service on par with any other cellular mobile service. By keeping two different regimes in place, TRAI is going only to multiply its problems, as an increasingly complex regulatory system will give rise to many more disputes. Already, the cellular operators have filed their complaints against Reliance and many more such cases can be expected to follow.

In order to keep both the cellular and the basic service operators happy, TRAI, opted for very large increase in tariffs for the fixed low-end subscribers. Their pulse rate was lowered from 3 minutes to 2 minutes, the free calls reduced and the existing rates for calls were also increased under the plea that cross subsidies were no longer possible and the low-end subscribers have to pay “true” cost of their services.

Access Deficit Charge

For justifying increased rents and call rates for the low-end consumer, TRAI has come out with a concept of “Access Deficit Charge”. This is based on an understanding that each subscriber must pay as rental the capital cost for his or her connection (the total telecom network cost divided by the number of subscribers). This, according to TRAI works out to Rs 425 per connection as against a current rental of Rs 280. This was also used earlier for increasing rentals and has now again been used to lower free calls and pulse rates.

We have already advanced arguments in these columns that this concept of Access Deficit Charge is not valid. Without the local network neither the cellular network nor the long distance network would have come into existence. Therefore there is a strong argument that such networks must pay a certain cost to gain access to the existing local network and therefore cover this Access Deficit. However, let us for arguments sake accept the TRAI’s concept of Access Deficit and examine whether there are other ways of covering Access Deficit that would not impact the low-end consumer as the current tariff order has done.

A simple scheme for covering Access Deficit would be to use differential calling charges rates based whether calls are being made on peak and off peak periods. Thus, the local call rates can be high, say from 9 AM to 6 PM and lowered progressively to very low rates between 10 PM and 6 AM. This would ensure that the recovery of the Access Deficit takes place from those who really make commercial use of the network and allows domestic and other consumers to pay low rates for their usage. This would also be fair: the high-end consumers generate the peak load in the system and it is the peak load that is responsible for a large part of the capital costs of the network. Therefore treating peak and off-peak periods differentially would not only address Access Deficit but would also be eminently fair to all the subscribes. Introducing this differential rate is a simple technical exercise — just changing the pulse rate at different times would achieve this purpose.

If such a simple solution is available for covering Access Deficit, why did TRAI not take this route? Answer to this lies in that the regulatory regimes are increasingly being used by business lobbies to enlarge their high-end subscriber base and increase profits. In other words, the new telecom policies are to help the rich at the expense of the poor, Robin Hood in reverse. The BJP government and TRAI are both partners in this scheme.

16th feb 2003