The Hindu Business Line : Freeing up interconnectivity

There is a growing feeling among industry-watchers that the light-handed approach of regulator in forbearance of tariffs has to be matched with a firm regulatory compliance and enforcement.

BY ANNOUNCING new tariffs for its services, Bharat Sanchar Nigam Ltd (BSNL) is following the trend started by Reliance Infocomm. The current tariff reduction by telecom operators is aimed at attracting maximum number of prepaid subscribers in the redrawn strategy of telecom operators for increasing their subscriber base.

Competition has given consumers a wide choice and also the benefit of lower tariffs. For almost one year, an appreciable reduction in tariffs had not happened. On the contrary, the telecom operators had realigned their prices by hiking the rentals and call charges for roaming on the pretext of rationalisation of the Inter-connect Usage Charges (IUC).

The hike was not justified and was even denounced by the regulator. At that time, it was seen as cartel approach among the operators, who perhaps wanted to buy some peace. Another reason given was that their average revenue per user (ARPUs) was declining. The ARPU ranges between Rs 400 for mobile and Rs 575 for all combined services, including national long-distance and international long distance NLD/ ILD.

The Telecom Regulatory Authority of India Chairman, Mr Pradip Baijal, has publicly maintained that an ARPU of $5 on incremental subscribers makes a viable case and he perceived even further scope for tariff reduction, with competition becoming aggressive. Interestingly, the recent tumbling of tariffs proved what the regulator had forecast.

There is a growing feeling among industry-watchers that the light-handed approach of regulator in forbearance of tariffs has to be matched with a firm regulatory compliance and enforcement. It is the latter weakness of the regulator that has spawned major problems with interconnection and unjustified access charges. Availability of effective and expeditious interconnection is one of the important requirements for competition in the market and for consumers.

True competition in the telecom sector comes from fair and transparent rules for the interconnection which provides access to the facilities of not only the incumbent but of all operators to give end to end connectivity to subscribers. There were problems from BSNL and MTNL, which controlled the "essential facilities" and even other operators who enjoyed the advantages of early entry.

There is growing feeling of regulatory failure to curb and eventually remove "monopoly" or dominant operator leveraging its position to deny or put up unreasonable conditions for allowing Points of Interconnection (PoIs).

Similar behaviour is also observed in insisting call handover at its chosen locations in the SDCA (short-distance charging area) where it enjoys its monopoly and dominant position. The tendency to deny these facilities has exposed the ineffectiveness of the interconnection regulations, issued in 2003 by the TRAI. Effective regulation must prevent and resolve interconnection delays and create binding "default agreement", if and when the two parties cannot reach an agreement on some technical and commercial terms and allow access to their facilities, pending dispute resolution by the TDSAT (Telecom Dispute --- Appellate Tribunal).

This lacuna in the regulations has encouraged dominant incumbents to defy any directive of TRAI on giving and restoring interconnection to its competitors. Not only do the interconnection issues remain contentious, its adherence to the philosophy of the access deficit charge (ADC) regime has also created problems.

TRAI's October 2003 order introduced access deficit charge into IUC charges from all services and all calls. ADC, which provided different rates for different specified category of calls, created more distortions as it led to bypass of networks and growth of grey market for domestic and international traffic. It also led to settlement disputes since ADC as well as "carriage" and "termination charges" were based on aggregated usage in seconds.

It is obvious that such experiment was not to succeed when BSNL, which has vertically integrated upstream and downstream facilities in all SDCAs and with no segregation of accounts, uses the payment mechanism to its advantage at the cost of other service providers.

In allowing costs for providing access, the regulator continues to compensate BSNL for the deficit as claimed. The compensation, or the access deficit, as it is called, has been worked out on rather questionable estimates of Rs 12,500 crore by BSNL in providing fixed telephone to urban and rural households.

These estimates were questioned by experts and the regulator had to scale it down to Rs over 5,000 crore. Even at the revised level of Rs 5,000 crore, serious doubts remain about the figure , as its larger beneficiaries are incumbent government companies — BSNL and MTNL — which make huge profits as monopolies.

The argument that even developed countries with less compulsion to charging low rental and tariff for unviable services had to formulate ADC schemes during initial years of liberalisation would not justify recovery of huge ADC. In the last few years, there is dramatic reduction in network costs and new devices are much lower in weight and economical in energy use.

The costs of networks are down by a third or less for wireless and cellular telephony services. The costs of rural network have to be reworked by the regulator based on futuristic costs of network and greater scope for increased revenues from value additions and new market opportunities with digitalisation and convergence.

The international experience in rural connectivity models by leveraging the USO funds have succeeded in encouraging private telecom companies in cellular and basic services in extending coverage to large parts of rural areas. More innovative initiatives through USO fund is a better option than to continue with current regime of ADC in the face of growing competition in all segments including NLD and ILD.

There is a major challenge for the TRAI in achieving the next phase of competition. The present competition has led to achieving the target of 7.6 per cent teledensity two years before the target fixed at the New Telecom Policy 1999. In reaching the next goal of achieving 15 per cent teledensity in the next five years will require the industry to penetrate new markets vigorously and make new investments.

For a long time the asymmetry in the regulatory approach in treating the incumbent monopoly operator more favourably has been observed and the regulator's ability to enforce its decision has also become a matter of concern. New investments may not be so much of a problem but it is the uncertainty on issues like ADC and the enforceability of interconnection regulations that stand in the way.

(The author is a regulatory affairs analyst and former chairman, ERC-Haryana.)

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