An elitist move

TRAI's recent proposals for a tariff restructuring go against the grain of the New Telecom Policy of 1994.

THE Consultation Paper on Framework Proposals for Telecom Pricing, which was released by the Telecom Regulatory Authority of India (TRAI) September 9, has stirred a hornet's nest, as did some of its previous rulings. The telecom regulator had come under severe criticism earlier for restraining the Department of Telecommuni-cations (DoT) from encashing the bank guarantees provided by defaulting licensees. Later, it stayed the Government's new Internet policy which would have provided cheaper and wider Internet access to millions of subscribers. In the same ruling, it had also invalidated the cellular mobile licence issued to Mahanagar Telephone Nigam Limited (MTNL), the public sector service provider, on the ground that it was the regulator's prerogative to advise on the timing and need for a third operator in the cellular telephony circles.

The current proposals are far more controversial than the earlier ones primarily because they are elitist in nature; they go against the grain of the New Telecom Policy of 1994 which envisaged wider access to and greater rural penetration of basic telephony. The TRAI has proposed an increase in basic telephone rentals and local call charges even as it has sought to lower tariffs on domestic and international long-distance calls. According to its own admission, "in general, the increase in bills will occur mainly for subscribers who make limited use of the phone or make mainly local calls." It has estimated that such increases "need not be more than about Rs.200 a month." The number of free bimonthly calls per subscriber is proposed to be reduced from 150 (250 in rural areas) to 120, and all calls above this number are proposed to be charged at a uniform tariff of Rs.1.30 per call as against the graded system currently in vogue in which the more intensive user pays progressively higher tariffs as in the case of domestic consumption of electricity.

It has been proposed to increase telephone rentals in rural areas to Rs.120 a month from the current rate of Rs.50 per subscriber in a rural exchange with a capacity of up to 1,000 lines. It is proposed to charge a monthly rental of Rs.160 for connections in urban exchanges catering to up to 100 lines. The current system of differential rental rates for subscribers in different exchanges linked to exchange capacity is to stay with appropriate upward revisions in the slabs. All proposals are caps.

What is the TRAI's argument in support of these proposals which clearly militate against the basic objective of the telecom policy? The TRAI claims that tariff rationalisation through regulation is necessary to prepare the industry for competition. It also claims that pricing should be based on cost and cross-subsidisation should be reduced in the interests of efficiency. It goes on to say that the current tariffs allow high operating surpluses to DoT, the monopoly service provider. It therefore seeks to rationalise tariffs in such a manner that cross-subsidies will be reduced without adversely affecting DoT's revenues. For achieving this, it seems to have identified revenues from long-distance calls as the source of surplus and has therefore sought to restructure tariffs in such a way as to shift the burden from the long-distance callers to those who make only local calls, that too limited local calls.

Consider the following assertions of TRAI: "Greater access to the network does not imply a more intensive use of that network." The regulator's objective, therefore, is clearly not greater access, but more intensive use. In other words, expanding the network as an amenity to be used by a large number of subscribers having limited use is discarded in favour of intensive use by fewer subscribers, in this case the elite and commercial classes for whom telephone is not a basic amenity but an accessory in their profit-making business or commercial activities. No further proof is required of the elitist bias of the proposals.

The TRAI also says: "A majority of the subscribers account for a very small portion of the total calls made. With a low price for access, these subscribers are largely unprofitable, which discourages the operator from focussing on this segment of subscribers. If greater profitability has to be achieved from the "low user" subscribers, then the price of access has to contribute a larger share of the revenue from these subscribers."

Statistics given to buttress this claim indicate that only 14 per cent of the total subscribers limit their calls to the minimum free limit. Then why not leave this small percentage well alone? What is the ultimate objective of the proposals? Is it to extend connectivity to a large number of people or to increase profitability to the operator? Why should price of access and not price of the call contribute to a greater share in profitability?

The premise on which tariff rationalisation is based is flawed. Why should local call tariffs be increased to prepare for competition especially when TRAI has gone on record saying that the existing tariffs allow high levels of operating profits to DoT? For those brought up on the theory that competition would mean lower prices and better services, this suggestion appears contradictory.

But behind this apparent contradiction is TRAI's concern for the prospective private operator who will enter the basic telephony market soon. The private licensee will have to share with DoT its revenue from every call made from its network. In the case of long-distance calls emanating from a private exchange, the share of DoT is much greater in the revenue generated. Therefore, by targeting these for reduction, while simultaneously raising rentals, TRAI ensures that the private licensees' profitability will remain unaffected even as DoT's profits take a beating.

TRAI's concern for the private licensee is manifest when it remarks: "...It is proposed that the tariff structure envisaged in this paper need not be restricted to provide revenue-neutral outcomes for the DoT." That cross-subsidies are an established practice in most utilities despite the International Monetary Fund-World Bank prescription to eliminate them is conveniently ignored by TRAI.

TRAI has rationalised tariffs for other telecom services, including cellular, paging, Internet, leased line and other value-added services, as well. The thrust of the entire exercise appears to be to increase the profitability of the private operator with scant concern for the user. In fact, Harsha Vardhana Singh, Economic Adviser to TRAI, whose inputs have been key determining factors in tariff rationalisation, has gone on record saying that the new structure, if implemented, will fetch between 25 and 30 per cent return on equity for private licensees. According to him, the calculations assume a 10-year depreciation period for their investments.

DoT and the MTNL fear a drastic drop in their revenues. It is reported that 60 per cent of DoT's Rs.14,000-crore revenue comes from national and international calls. By bringing down the surpluses of the public sector service providers, TRAI wants to ensure scope for transferring these surpluses to private licensees. This is questionable.

Even more questionable is TRAI's utter disregard for social objectives, which would make the weakest and the poorest of the consumer bear the burden for this transfer. DoT, which no longer gets budgetary support but has managed to give 33 lakh new connections in 1997-98 and 40 lakh in 1998-99, will now have to downsize its plan to give 55 lakh connections in 1999-2000. That is, if TRAI has its way.