Who's taking you for a ride?

Cell users are paying more and the blame game has begun

Last year, Spice Telecom, which operates mobile services in Punjab, shook the cellular services market by charging only Rs 3.99 a minute for a call from a cellphone to the US "� nearly half the tariff charged by its competitors.

Last week, however, the Modi-owned Spice Telecom raised its call rate sharply to Rs 8.25. Reason? Customers have to fork out a Telecom Regulatory Authority of India (TRAI)-mandated (from February 1) access deficit charge (ADC), which Spice will collect and in effect hand over to Bharat Sanchar Nigam (BSNL) so that the state-owned company can continue to subsidise local calls around the country at below-cost tariffs.

Spice Telecom CEO Dilip Modi asks regretfully: "What option did we have but to pass on the Rs 4.25 ADC to customers? Otherwise, we had to pay from our own pocket to maintain our tariff levels. It's sad, especially at a time when we are trying everything to increase our customer base."

Spice Telecom is in good company. The Bharti group jacked up national long distance (NLD) and international long distance (ILD) call tariffs from an average of 12 per cent to as high as 15 per cent, depending on the distance and area.

Last week, Reliance Infocomm, which offers code division multiple access (CDMA) services and which had entered the cellular services market promising affordable tariffs, too raised the tariff for NLD calls from Reliance handsets to global system for mobile (GSM) handsets and to fixed line telephones by Rs 1 a minute , for some distances and tariff plans.

Reliance Infocomm also took the opportunity to raise tariffs for both international as well as national short messaging service (SMS).

Even the state-owned Mahanagar Telephone Nigam Ltd (MTNL) hoisted NLD rates for cellphone to cellphone calls by 20-30 per cent and ILD rates to the Middle East and Africa by over 33 per cent, stating that it cannot absorb the extra ADC burden.

Mind you, the TRAI, the industry's regulator, clearly suggested that cellular service companies had no business jacking up rates because they could easily have absorbed the ADC.

As a result of the ADC and tariff increases, subscribers who make international calls to the US and the Middle East wind up paying much more than they did in 2002.

Moreoever, NLD call rates are back to the levels they were in January last year. Indeed, some telecom industry men think that India's 30 million mobile subscribers will now have to fork out at least an additional Rs 1,000 crore this year.

Some five million to 10 million of the 30 million cellular service susbcribers use NLD and ILD services. Their bills will go up on an average by Rs 1,000 to Rs 2,000 annually.

That's a substantial sum for most subscribers, considering that the average revenue per user (ARPU, in telecom jargon) is roughly Rs 5,600 a year.

All this is, of course, the outcome of officialdom's desire to ensure that BSNL continues to keep local calls and rentals much below their cost.

Who's the culprit here? A verbal war has already broken out on this. Cellular service companies c laim that the TRAI has left them with no option but to raise rates. The TRAI ripostes that cellular service companies could have absorbed the extra cost.

Says a senior TRAI official: "There is no justification for the tariff hike. The ADC could have been adjusted in the existing tariff structure. Reports suggest that operators can sustain the business even with an ARPU of $5; in India the ARPU levels are $10 (a bit over Rs 450)."

He also implies that the cellular services camp is making a mountain out of a molehill: "There is not much change in the ADC burden for cellular operators. In fact, 75-80 per cent of the total ADC amount is paid by BSNL."

Cellular service companies, in turn, attack BSNL. Does BSNL need to be subsidised at all? As the Cellular Operators Association of India (COAI) said earlier, BSNL has made profits of over Rs 6,300 crore in the last 10 years.

What is more, the TRAI has allowed all telephone service companies, including BSNL, to raise rentals. But BSNL has barely raised rentals.

BSNL can also charge Rs 1.20 for a two-minute call but it has pegged the rate to three minutes. It can also charge higher tariffs for commercial connections: it has not done so.

Instead, it wants cellular service subscribers to subsidise its operations. Telecom consultant T H Chowdhury, a retired VSNL chairman, argues in a recent paper he wrote: "There are 40 million basic phones of which 20 million are for businesses. Should they be subsidised? There is no justification for subsidising telephones for private use and businesses."

Adding to the chorus of complaints, T V Ramachandran, COAI secretary general, says: "It is extremely unfair to burden cellular service subscribers with ADC for cell-to-cell NLD and cell-to-cell ISD calls when they are not even using the BSNL fixed line network (their calls go through either Bharti's NLD facility or through Videsh Sanchar Nigam Ltd)."

But BSNL passes the buck to the TRAI. Says V P Sinha, BSNL's newly appointed chairman and managing director:

"It would be wrong to blame BSNL for the ADC because it's the TRAI which introduced it. If anyone has a problem they should approach the regulator."

Sinha also underscores the point that BSNL is the only company in the country that offers rural telephony just to meet the government's tele-density targets.

"This is at a cost to the company for which someone has to pay," he adds.

So will this end up in yet another celebrated battle in court? GSM cellular service companies, whose interests COAI represents, are reluctant to take that leap.

Says an executive at a leading cellular service provider: "We have had enough of legal wrangles. It is for the consumer associations to take up this matter."

Yet that position comes under fire. A senior CDMA telecom company executive says sarcastically: "The GSM lobby had raised a hue and cry in the name of consumers when ADC was first implemented last year because it feared that it would make their services uncompetitive vis-a-vis those CDMA limited mobile operators offered. But they are now keeping quiet because both CDMA and GSM operators have to hike tariffs. So everyone is in the same boat."

As the verbal jousting continues, note the backdrop against which the latest telecom rumpus is set.

The TRAI slapped an ADC from February 1 on long distance cellular phone-to-cellular phone calls and on international calls made from a cellphone.

This topped an ADC that it imposed last May on long distance calls between cellular handsets and fixed line phones and between fixed line and fixed line phones across the country (which of course BSNL customers had to bear).

The TRAI's justification for introducing an ADC for cellular services is that earlier fixed line service companies (BSNL mainly) bore 80 per cent of the ADC burden. It has now merely shifted a part of that burden to cellular service companies.

Cellular companies, however, had opposed the way the TRAI had calculated the ADC. Earlier, the TRAI had estimated that the the total ADC figure would be about Rs 13,500 crore "� the sum which BSNL in effect loses on its social obligations "� or nearly 30 per cent of the telecom industry's total revenue.

But the TRAI was forced to review the numbers after COAI protested to it about them. It then calculated that the total ADC figure would be nearly a third of its orginal figure, that is, Rs 5,000 crore.

Exclaims a senior telecom company executive: "The whole process is a sham. Does the lower figure mean that in the last six months BSNL's loss on account of social obligations has fallen from Rs 13,500 crore to Rs 5,000 crore and that it has suddenly become more efficient? Customers are being taken for a ride."

Note another complication in this tangled tale. Some cellular service companies say that their subscribers have paid much more than they should by way of ADC.

So the TRAI should refund the money (about Rs 1,000 crore) to them. That's because from May 1, 2003, cellular service companies started paying ADC on the basis of the old calculation of Rs 13,500 crore.

Says a senior telecom industry executive: "For the last nine months we paid ADC on the basis of the old calculation. Now the TRAI has brought it down. So will the government refund us the Rs 1,000 crore which we can pass on to customers?"

A TRAI official's answer: "There is no question of any refund because the Rs 13,500 crore is not the absolute outgo of money."

Last but not least, cellular service companies fear that BSNL will use the ADC money it gets to keep its cellular service tariffs low "� the state owned company has still not increased its cellular service tariffs despite the new ADC regime having come into force "� because it does not maintain separate accounts for all this.

TRAI officials say that the regulator has already issued directives to BSNL asking it to maintain separate accounts and that this will be done. But they privately agree that ADC is not the best answer to BSNL's social obligations problem.

Says a TRAI official: "Even we would like to have a regime where there are no subsidies. We propose to move to a regime without an ADC. This could happen a year or two from now."

At least till then, mobile service subscribers will have to write out bigger cheques to their service providers.

The ABC of ADC

Precisely why did the TRAI insist on cellular service companies charging their customers an access deficit charge (ADC)?

As the argument goes, the state-owned Bharat Sanchar Nigam Ltd has kept local call rates and rentals lower than what they cost because of its social obligation to increase India's tele density. BSNL also services rural India where tariffs are much lower than the cost.

BSNL (the government, actually) used to recover the difference between local call rates and their costs by keeping ILD and STD rates high. But with long distance services having been opened to private companies, tariffs crashed.

So the government had two choices "� raise local call and rural India call tariffs or provide a subsidy in some other form. It chose the ADC which all telecom companies would have to pay.

After all, India is a poor country and the poor have got votes and won't tolerate higher tariffs "� or so the politicians fear.