Sunil Jain: TRAI boosts BSNL's profits, again

RATIONAL EXPECTATIONS

While many, including the BSNL chief himself, have expressed their apprehensions over the impact of the recent OneIndia announcements on the telecom PSU's fortunes, I wouldn't worry as it's going to be another bumper year for BSNL. For one, as a wonderful table prepared by my colleague Joji Thomas Philip shows, very few users benefit by using the OneIndia plan; so the chances of their switching to it, or of BSNL losing from it, are not that great. Second, BSNL is going to get around Rs 3,000 crore from its competitors for doing nothing, and that will go straight to its bottomline "" to get this kind of accrual, BSNL would need to increase its top line by around Rs 14,000 crore, which is around 40 per cent of its current turnover. In 2004-05, BSNL's top line grew by six per cent, to put the number in perspective.

How BSNL will get this bounty is simple. In May 2003, the telecom regulator, prodded by the government no doubt, decided that BSNL was providing below-cost fixed-line telephony in both rural and urban areas (at its own volition, one might add, since urban telephone rates are not regulated) and so it needed to be given an Access Deficit Charge (ADC) which would be collected by levying a surcharge of 30-40 per cent on all of us who made/received long-distance calls "" on the calls from a mobile phone to a fixed line, this goes up much more. We'll come to whether this is justified in a moment, but the important thing to keep in mind here is that while the TRAI put the ADC at Rs 5,300 crore for the year, the estimates are that, since the telephone traffic increased way beyond expectations, the amount collected will be over Rs 8,000 crore for the year. That is, BSNL will get around Rs 2,700 crore extra ADC payments in 2005-06.

Now, since the TRAI had always said the ADC regime had to be phased out, informed estimates put its latest ADC requirements for 2006-07 at around Rs 3,000 crore "" the new ADC order should be out later this week. But since BSNL has already collected this amount, if you include the interest on the Rs 2,700 crore, the Rs 3,000 crore or so that it gets in 2006-07 will be pure profit. From my interaction with the TRAI, it appears the regulator is not even considering the option of saying that since the ADC for 2006-07 has already been collected in 2005-06 itself, there will be no ADC cess on the calls you and I make in 2006-07.

While Telecom Minister Dayanidhi Maran is getting all the flak for this since he did not allow the TRAI to come up with a new ADC order (see Maran dials a wrong number, August 22, 2005) when it was clear the ADC targets were going to be exceeded by a long margin, the TRAI must share part of the blame. For one, when it issued the last ADC order in January 2005, it promised to review the ADC rates within 3-6 months and make changes without issuing any consultation paper "" this is around two months before Maran put a gag order on it.

There is then the old issue of whether the ADC itself is justified. Because if it is not, as most private players in the industry keep saying, BSNL is obviously using this money to lower its tariffs in other areas (cellular and long distance) and this, in turn, gives it another unfair advantage over its competitors. So, for instance, even the TRAI's various ADC papers very clearly say that BSNL's urban call tariffs on its fixed lines are below cost "" while this is funded by the ADC, this low tariff forces competitors to also price their services low. In other words, BSNL's great competitive strength that so impresses users is partly funded through other telecom firms. By the way, it's useful to keep in mind that BSNL, or any others that put up new rural phones, get paid for this separately through the Universal Service Obligation (USO) Fund which is funded through a five per cent levy on all telephone revenues in the country.

This is the second area of the TRAI's culpability. Despite the ADC regime being nearly 33 months old, and having yielded around Rs 15,000 crore to BSNL (for reasons best known to itself, the TRAI has never put out numbers on the actual amount collected!), the TRAI has never conducted a test to see if BSNL really requires this money "" this is important because the current ADC charges are based on the numbers provided by BSNL and have not been subjected to scrutiny by any of those competitors whose customers are being asked to pay the ADC.

Indeed, in its ADC consultation paper of June 2004, the TRAI had given two estimates for ADC "" if BSNL charged its customers Rs 200 as a rental, the figure was Rs 1,402 crore and if it charged a rental of Rs 156, this would go up to Rs 3,436 crore. In which case, how did the TRAI decide the ADC was going to be Rs 5,300 crore when it issued the order in January 2005? Perhaps that's why, in its January 2005 order, the TRAI promised "a new consultation paper will be brought out on admissibility (should BSNL get ADC, that is) and quantum ... including the verification of the cost items that are presented in the annual reports of service providers..."

We have a serious competition issue here and what is even more galling is that when the current incumbent retires next month, there is a strong move to install an ex-telecom bureaucrat as the TRAI chief. The chances of a level-playing field for the private sector will then recede that much further.