Published: The Hindu Business Line, May 20, 2005

By Manish Agarwal

ACCESS DEFICIT charge (ADC) is once again in the news. The Telecom Regulatory Authority of India (TRAI) recently changed the definition of roaming for calculating the ADC.

At the same time, it came out with a consultation paper, which suggests that telecom service providers other than Bharat Sanchar Nigam Ltd (BSNL) ā€” the state-owned operator ā€” do not deserve the compensation for ADC.

ADC is an issue that has hogged the limelight ever since it was first introduced in 2003. Several stakeholders, including consumer organisations, have questioned its logic.

The concept of ADC was first enunciated by TRAI in its Interconnection User Charge (IUC) Regulation of January 2003.

At that time, TRAI had recognised that basic telecom service providers had historically run a cross-subsidised system in which surpluses from long-distance calls were used to offset losses that resulted by offering services such as local calls, monthly rentals, services to rural exchanges, at below cost.

With competition eroding the margins available in the long-distance segment, this system clearly could not continue to work.

According to the regulator, either the prices, which were hitherto subsidised, would have to increase or an “access deficit charge” would have to be provided to basic service operators to cover the gap between tariff and costs.

Since the number of fixed-line subscribers far exceeded mobile subscribers at that time, any hike in their rental/tariff would have made basic telecom services unaffordable to many.

Moreover, the teledensity was low (4.2 in December 2002) and the objectives of affordability and universal access were of great importance. TRAI thus settled on increasing tariffs somewhat (by reducing the pulse rate) and providing an ADC to basic service operators to cover the rest.

To recall, the relevant objectives of the New Telecom Policy 1999:

  • Make available affordable and effective communications for the citizens
  • Strive to provide a balance between the provision of universal service to all uncovered areas, including the rural areas, and the provision of high-level services capable of meeting the needs of the country’s economy
  • Encourage development of telecommunication facilities in remote, hilly and tribal areas of the country.

It is observed that these objectives do not specify the type of service (read, basic) that has to be promoted. However, TRAI has been maintaining that ADC is required to make the basic telecom services affordable to the common man to achieve the objectives of NTP 1999.

But the circumstances have changed, in just two years. The number of mobile subscribers now exceeds fixed-line subscribers and the gap continues to grow (see Table). Thus, the circumstantial reason for placing an emphasis on basic telecom services for the purpose of ADC does not stand the test of time.

Moreover, as per TRAI’s own assessment, India now offers the cheapest mobile tariffs in the world. This calls for an equal emphasis on mobile services for the purpose of universal service and access.

TRAI seems to have taken the view that only fixed services can improve accessibility. This presumption is also reflected in its recommendations on unified licensing regime, where it has recommended the creation of niche operators to provide (only) fixed telecom services in telecom-facility-wise backward areas.

Surprisingly, the regulator’s stand is in contrast to the current thinking in the government. Recently, the Minister for IT and Communications had announced that the Government would facilitate mobile operators roll out networks in rural areas by sharing infrastructure.

The idea is to put towers in the rural areas so that cellular and Code Division Multiple Access (CDMA) lines can reach villages. The statement clearly acknowledges the potential of mobile services in meeting the objectives of NTP ’99.

TRAI should, thus, focus on achieving the objectives of universal service and access by giving equal emphasis to all telecom services, rather than being obsessed with just basic telecom services. The larger question here is to facilitate access to affordable telecom services, and any support to meet this objective should be available to both fixed as well as mobile services.

As of now, BSNL receives ADC payments though it refuses to undertake tariff revision that current TRAI regulations allow it to carry out.

The perverse incentive to BSNL to adopt this approach is easy to see since the losses so incurred can be directly recovered from payments through ADC. BSNL, thus, does not face the risk of customer displeasure or of losing customers to competition in such an environment. Furthermore, whenever there is a talk of removal/reduction of ADC, BSNL threatens to increase local call charges, rentals, etc. TRAI has so far been succumbing to this pressure. What is not realised is that by giving this threat, BSNL is trying to block the substitution that would otherwise take place, as subscribers would move from fixed to mobile services. ADC is, thus, a big distortion in the working of market process in the telecom sector.

ADC was initiated at a time when fixed subscribers were much more than mobile subscribers. However, now, the number of mobile subscribers exceeds that of fixed-line subscribers. Hence, the rationale for continuing to ensure affordable fixed services does not stand the test of time.

The more important objective is to promote universal service and access by giving equal emphasis to all telecom services, which can be done through the Universal Service Fund. It is time to wind up the ADC regime rather than debate on who should be eligible to receive or collect it.