Sunil Jain: Who's the regulator anyway?

RATIONAL EXPECTATIONS

While most of those who travel frequently and are forced to pay an atrociously high Rs 3 per minute each time they use their phones in different cities (apart from the regular air time and other charges) were relieved at the dramatic cut in roaming rates once Telecom Minister Dayanidhi Maran gave a public dressing down to the country's cellular operators last week, they forgot to ask the obvious question.

Which is, how come all major operators reduced their roaming charges at the same time by almost the same 33 per cent to almost the same figure of Rs 1.99 per minute?

Smacks a bit of a cartel doesn't it, and clearly shows the huge fat there was in the system that the cellular firms didn't take much time in reducing rates once Maran chided them for only "taking, taking and taking" while the government was "giving, giving and giving".

It is, of course, true that absurdly high roaming charges are an international scandal and each time I've used my phone overseas, the bill has given me more than a minor heart attack.

Apart from the issue of probable cartelisation, what's even more interesting is that each time the telecom regulator, Trai, has sought to cut tariffs, the cellular firms have immediately filed a review petition before the telecom appellate tribunal, the TDSAT.

Just a few weeks ago, Trai decided to impose an access deficit charge on roaming calls, and last week, the operators filed their case in the TDSAT. In which case what happened on the roaming charges clearly shows the cellular firms think Maran is more powerful than Trai Chairman Pradip Baijal!

The sequence of events, needless to say, should get Trai to do some serious introspection since it is its mandate to ensure customers aren't being fleeced. It is well known that in the past, when Trai used to regulate tariffs, barring a few exceptions, the regulated tariff was generally higher than the market tariffs""in other words, Trai was behind the curve.

With more players in the market, Trai shifted its focus away from highly regulated tariffs to forbearance, once it felt competitive forces would do the job.

While that's a good principle to have in general, there are clearly enough areas where there is still enough fat. One area, for instance, relates to the bandwidth charges for both domestic and international carriage where Trai slashed rates since competition wasn't doing anything for tariffs (more on this later).

Both international and national long-distance tariffs, it is true, have fallen dramatically over the past few years, but they are still way above international levels. The tariff of a call from Delhi to New York on a mobile is Rs 14.2 a minute, for instance, but the costs are a fraction of this. My cell phone company would have to pay Rs 2.5 per minute as access deficit charge (ADC) and a maximum of Rs 1.50 for carrying my call to New York.

Yet, Trai hasn't really moved on this front. Just last week, BSNL invited bids from companies to carry its calls overseas and Reliance Infocomm won the bid at 1.69 cents""that is, each time a BSNL customer calls the US, for instance, BSNL will pay Reliance a mere 74 paise for carrying it.

Profit margins on domestic long-distance calls, it is true, are not as criminally high as they are for international ones, but the profits here too are 35-40 per cent. A Delhi-Mumbai call's tariff is Rs 2.64 a minute while the ADC is 30 paise, the carriage cost 70 paise (that's the cost you pay a phone company with a local long-distance licence to carry the call on its network) and the termination charge 30 paise (that's the amount you pay the company whose phone in Mumbai is being called from Delhi).

This is clearly an area where Trai needs to do some serious work. In any case, since Baijal is so fond of talking of the "death of distance", there's really no reason why international calls should cost so much more than local long-distance calls.

Of course, while doing anything, Trai will have to do a really comprehensive job, and this is where the case of Trai slashing the tariffs on international bandwidth comes in.

While most people have lauded this move because it will sharply reduce the costs for BPO/ITES firms which lease loads of bandwidth for their operations, Videsh Sanchar Nigam Limited (VSNL) was understandably not too happy, and went to TDSAT in appeal. Last week, TDSAT upheld the appeal.

While this appears unfair since international bandwidth tariffs in India are higher than global rates, the case was really decided on a technicality, though a very important one with major implications for how all regulators have to operate in future.

VSNL argued that while Trai claimed to have used international benchmarks to arriving at its judgement and that this was done through a study by consultants Ernst & Young, this study was never shown to it so that it could verify whether E&Y had got their calculations correct.

In what smacks of arrogance Trai argued that its power to fix tariffs was in the nature of subordinate legislation and so beyond the purview of TDSAT! To use the quote from Trai's submission, "Transparency and rules of natural justice (in this case, allowing VSNL to see and rebut the E&Y report) are two different concepts. So far as the rules of natural justice are concerned, these have no application in tariff fixation matter, which is in the nature of legislation."

Now for all you know, Trai's decision to cut tariffs may have been correct, but as a regulator, it has to show all details of calculations it is using to the parties concerned and give them ample opportunity to rebut these calculations.

This, by the way, could be an entry point for telecom firms that want to contest the arbitrary ADCs, but that's a different matter. All in all, it's been an eventful week for Indian telecom.