The Hindu Business Line : Redrawing the regulatory line

WHEN THE DEPARTMENT of Telecommunications asked the Telecom Regulatory Authority of India (TRAI) to consult the government before taking any decision on the Access Deficit Charge, it gave the impression that the regulator's autonomy is being undermined. Though the letter from the DoT to TRAI is presumably a `watered-down' version of a directive proposed earlier under Section 25 of the TRAI Act, it betrays an anxiety to protect the ADC flow of over Rs 5,000 crore to the state-owned Bharat Sanchar Nigam. The ADC is paid to fixed-line operators, primarily BSNL, to bridge the deficit arising from their tariffs being below cost in the rural areas, for social reasons.

Undoubtedly, the government has the prerogative to convert the mode of ADC computation into a `policy' issue, but any such attempts are expected to set an unhealthy precedent for the sector. Primarily because it will militate against the appellate mechanism that is authorised to resolve conflicts between operators on these sensitive issues. Assuming that BSNL stands aggrieved by the TRAI order on ADC, it always has recourse to the TDSAT and, further, the High Court. If the telecom regulatory mechanism is tinkered with in any way, it will also send wrong signals to other regulatory authorities, such as insurance and power, where tariff and related issues are just surfacing in the public domain.

The ADC controversy has blown out into the open just as TRAI is progressively moving towards two major reforms on this front. It appears that, instead of a call-by-call basis, the regulator prefers a revenue-sharing formula, based on a percentage of annual revenues of the operators. In the backdrop of the Reliance Infocomm international call re-routing controversy, the switch to revenue share is likely to confer some key benefits. It will remove the incentive for a grey market in international calls and curb the need to misreport different categories of calls.

It appears that DoT is also inclined to go with the revenue-sharing formula, but the bone of contention with the regulator is on the revenue-share percentage. In a Consultation Paper of June 2004, the regulator had argued that based on a revenue share percentage of 2.2 to 5.3, the ADC could be reduced to Rs 1,400-3,400 crore. Since BSNL currently gets Rs 5,300 crore from ADC, the shortfall in ADC flows will be substantial if the new regime comes into force. This is something the DoT wants to protect for BSNL. However, given the substantial progress BSNL has made on the mobile and broadband fronts, the ADC computation need only be confined to the rural obligation costs being borne by BSNL. If this can be isolated from the rest of the subsidies enjoyed by BSNL (such as low-paying subscribers in urban areas) and worked out on an independent basis, it will throw up the appropriate revenue share percentage and ADC value. The earlier this issue is resolved, the better it is for the sector, which is suffering from another bout of regulatory hangover.

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