Sunil Jain: Trai and trai again

RATIONAL EXPECTATIONS

It's time to gloat. Ten months ago (June 23, 2003 and February 9, 2004) this column began arguing that the Telecom Regulatory Authority of India's (Trai) decision to impose an Access Deficit Charge (ADC) on all calls, on STD calls from one mobile phone to another for instance, was really just a means to subsidise the state-owned Bharat Sanchar Nigam Limited (BSNL), and that BSNL could use these very funds to drop prices in other areas to out-compete the same people (the cellular operators) who were subsidising it.

Well, BSNL's done precisely that. When all other mobile phone companies were forced to hike rates by 10-15 per cent because of the ADC in February, BSNL didn't need to follow suit since it was being paid an ADC on its fixed line business anyway, and thanks to this, its subscriber additions jumped eight times in March after falling steadily over the past several months.

And it's not just BSNL that's benefited from this peculiar ADC that all fixed-line phone companies get. Touchtel has just announced a scheme whereby, if you get a 10 minute overseas call on your Touchtel landline, you can make two minutes of overseas calls absolutely free!

You see, under the ADC scheme, whenever you receive or make any international phone call on your mobile or land line, the land line operator (whether it's BSNL, MTNL, Touchtel, anyone) has to be paid Rs 4.25 per minute.

This ADC, ostensibly, is supposed to make up for the losses the fixed line operators have to incur when they install land lines "" why a land line has to be installed if it is really uneconomical, of course, is a question no one really has an answer for, especially now that there is a unified license and land line operators can install mobile phones instead.

So, when a Touchtel customer gets a 10 minute call from the US or the UK, say, the caller has to pay Touchtel an additional Rs 42.50, apart from what he pays, say an MCI or a BT, to carry the call to India.

Yet, since no other country in the world has anything like an ADC on international calls, when the same Touchtel customer calls the UK for his free two minutes, Touchtel ends up paying only about Rs 1.50 or so to BT for carrying the call. So you can understand why the company's come out with the scheme.

Since the country's cellular operators charge an additional Rs 1,500-2,000 crore a year from their customers, and then pass it on to land line firms like BSNL in the form of the ADC, they've naturally been protesting to Trai.

First, they argued that BSNL didn't actually make any losses on its land line business, and right from the time that Justice Sodhi was Trai chief, BSNL has been given countless opportunities to raise its tariffs, but has refused to do so.

Almost immediately, Trai reduced its ADC figure from Rs 13,500 crore to Rs 5,300 crore! Secondly, the cellular firms argued that if they had to pay the ADC, they needed to be sure BSNL used the money only to subsidise its local call network.

So, now that BSNL has decided to slash its STD and ISD rates by 25 per cent, the cellular operators have asked Trai to look into the matter again "" is our money, they're asking, being used by BSNL to fund its long distance tariff reductions?

A few days ago, television channel Headlines Today met Trai chief Pradip Baijal to get his reaction to the letter. Baijal, implicitly, agreed that the ADC had a problem for he said there were two options.

First, to set a floor below which BSNL could not lower tariffs (more on this later), and two, to reduce the ADC itself. The third option, Baijal said mischievously (or was it guardedly?) was to do nothing.

For someone who's always argued the ADC is conceptually flawed, a review is welcome. But, surely fixing a floor for international call rates compounds the original problem, since BSNL will continue to take the ADC money, but will not be allowed to pass on some of this to its customers by way of lower STD/ISD call rates!

Besides, fixing a floor is anti-consumer. After all, if BSNL wants to bleed by lowering prices unilaterally, let it "" the only caveat is that BSNL's bleeding shouldn't be paid for by other competitors in the form of an ADC.

Besides, it is possible BSNL has slashed prices to get more business. Frankly, the only situation in which a regulator can intervene in pricing decisions is if they are predatory, and this is something Trai will have to prove first.

Though, with BSNL paying VSNL just 60-70 paise a minute for carrying overseas calls for which it charges customers several times more, I don't see how it can be predatory.

The only way Trai can prove predatory pricing is if it gets BSNL to start keeping separate accounts for its different businesses, to figure out which is losing money, and which isn't. But, despite the fact that Trai first issued a consultation paper on getting BSNL to separate its accounts over four years ago, there has been virtually no progress on the matter.

While a review of the ADC is desirable, the way things are going, it looks as if the next version of the ADC could make even less sense.

suniljain@business-standard.com