A setback for Reliance

The Telecom Dispute Settlement Appellate Tribunal holds Reliance Infocomm guilty of routing international calls landing in India as locally originating ones and dismisses its petition challenging the penalty imposed by the Department of Telecommunications.

THESE are hard times for the Reliance Group, India's largest private conglomerate. Already beset with internal squabbles over which of the two brothers, Anil or Mukesh Ambani, owns the group, it faces more embarrassment because of the actions of its telecom venture, Reliance Infocomm.

Reliance suffered a major setback on March 5 when the Telecom Dispute Settlement Appellate Tribunal (TDSAT) dismissed its petition challenging the Rs.150-crore penalty that the Department of Telecommunications (DoT) imposed on the company. Infocomm has been accused of routing international calls landing in India as calls originating locally. The TDSAT verdict is a major victory for the state-owned telecom companies, Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL), which have claimed losses running into several hundred crores as a result of the illegal call routing. The two companies have also taken Reliance Infocomm to court and threatened to disconnect services to its subscribers.

The DoT issued its first show-cause notice to Reliance Infocomm in October 2004 asking it to explain its conduct. DoT, the licensor of telecom services, alleged that Infocomm had violated provisions of the National Long Distance (NLD), International Long Distance (ILD) and the Unified Access Service Licences (UASL) issued to it. The department followed up these with other notices and, on December 23, 2004, issued an order to Infocomm demanding that it pay the penalty within 15 days. The penalty was based on the DoT's assessment that the violations pertained to the three telecom circles of Kolkata, Chennai and Mumbai. In its reply Infocomm pleaded that the DoT should not insist on the payment of the penalty. However, on January 17, the DoT rejected the company's "detailed explanation" and asked it to deposit the penalty within three days.

The show-cause notice alleged that Infocomm had tampered with the Calling Line Identification (CLI) of international calls landing on its network, before routing them on the networks of other service providers, particularly BSNL and MTNL. The DoT maintained that by doing this, Infocomm avoided paying the higher Access Deficit Charges (ADC) that were applicable on calls originating overseas in comparison to the calls originating within India.

The ADC, sanctioned by the Telecom Regulatory Authority of India (TRAI), is a mechanism meant to subsidise the operations of landline operators to cover the losses incurred by them in providing below-cost services to subscribers with the objective to improving the teledensity in the country. BSNL and MTNL are the main beneficiaries of the ADC.

The DoT alleged that by "masquerading" international calls as local calls Infocomm avoided paying the ADC of Rs.4.25 a minute and paid only 30 paise a minute on these calls (Frontline, December 31, 2004).

In its appeal against the DoT's order, filed before the TDSAT, Infocomm claimed that its service was, in fact, a special type of service. It said that the absence of the CLI in such calls originating overseas was a feature of a service it termed as Home Country Direct Service (HCDS), which it claimed was "internationally recognised". The HCDS, according to the International Telecommunications Union, is akin to operator-assisted calling.

In its petition Infocomm claimed that the "presentation of CLI is an inherent feature" of HCDS and that such calls could "be monitored, intercepted or traced by security agencies". It countered the DoT's allegation of possible breach of security by claiming that the "service does not pose any security threat".

The DoT seized the opportunity to present its case before the TDSAT by pinning its case on the security issues raised by the "illegal routing of calls". In response to Harish Salve, the former Attorney-General, who appeared for Infocomm, the government, represented by Solicitor-General Goolam E. Vahanavati, pointed out that "an international call must continue to be an international call at the call destination". "The character of the call cannot be changed," Vahanavati pointed out. "The whole masquerade had been done to hide and mask the international call and to wriggle out of the obligation to pay ADC on the basis that it was not an international call."

With reference to the HCDS, Vahanavati pointed out that Infocomm had no agreement with other operators to provide such a service. He pointed out that the DoT had first sought an explanation from Infocomm about such calls in June 2004. But it was only on September 14 that the company responded with details of such calls, in a list running into 21 pages. This was also the first time that Infocomm came up with the HCDS theory. It was also the first time the company provided the licensor with details of numbers (domain numbers) used for landing such calls in India. Later, Infocomm, according to the DoT, accepted that it had used numbers starting with 3039 in three locations - Chennai, Kolkata and Mumbai - for routing such calls.

In fact, Vanahavati alleged that Infocomm's claim of operating an HCDS scheme was itself false. He said that the HCDS theory was "an afterthought to cover the fraud". What Infocomm offered was, in fact, a prepaid international service by using a calling card. It is significant that in May 2004 Infocomm's United States affiliate, Reliance Communication Inc., launched Reliance IndiaCall card in U.S. markets offering subscribers the option to call India at 9.9 cents a minute.

Vahanavati alleged that Infocomm's modus operandi was a criminal act because it involved the use of "fake numbers" when terminating the international calls at the called numbers in India. These numbers did not belong to any subscriber and were therefore meant to "misguide" subscribers and mislead the security agencies. "It is not one or two dummy numbers," he pointed out. "Rather, they run into hundreds and thousands." He pointed out that Infocomm's "camouflage" of these calls "was certainly unprincipled, and if we may say so, unscrupulous".

Referring to Infocomm's assertion that the data pertaining to such calls were in its possession and could have been called for by security agencies if and when they wanted them, Vahanavati pointed out that time is of essence in such investigations. Security agencies could not afford to wait for records to be made available to them when they needed it on a real-time basis.

The three-member Bench of the TDSAT consisting of Justices D.P. Wadhwa, Vinod Vaish and D.P. Sehgal accepted the DoT's contention that Infocomm had tampered with the CLI at its UASL switches in Chennai, Kolkata and Mumbai. It ruled that Infocomm "deliberately changed the nature of the calls". And, instead of transmitting the original numbers to the terminating number, Infocomm "generated 10-digit numbers" at the UASL switches in the three centres.

The Bench pointed out that Infocomm's UASL switches generated 10-digit numbers out of Infocomm's "mobile directory". This, it observed, could be "easily done" using available software. The Bench overruled the company's contention that the dispute was essentially between operators - Reliance Infocomm against BSNL and MTNL - and that the DoT had no role. The Bench dismissed Infocomm's elaborate explanation about the violations being in the nature of an HCDS scheme. It upheld the DoT's contention that such a service would need to be based on an agreement between operators.

The Bench dismissed Harish Salve's contention that the DoT violated principles of natural justice by not giving Infocomm an opportunity to explain before levying the penalty. The Bench said that its examination of the "chronological sequence of events leading to the imposition of the penalty" by the DoT showed that Infocomm "took some time" before it explained to the DoT the circumstances in which international calls were being terminated in the networks of other service providers. It observed that it was only after "considerable prodding by the DoT" that Infocomm came out with the HCDS theory.

The Bench pointed out that Infocomm's replies to the DoT notices sought more details from the licensor. In fact, it observed: "We find it somewhat strange that a licensee (Reliance Infocomm) under the Indian Telegraph Act should be calling upon the licensor (DoT) to do the explaining and give justification to the petitioner (Infocomm) again and again."

It dismissed the company's claim that the DoT ought to have sought the recommendation of the TRAI before imposing the penalty. It pointed out that the licence agreement is clear that the DoT is empowered to impose penalties if and when clauses of the licence are violated; it noted that the DoT had established clear violations of the licence.

The Bench observed: "Having regard to all the circumstances, including the subject matter of licence, the performance of the licence provisions which have been breached, the circumstances in which the breach was committed and the consequences of the breach, putting the security of the nation in jeopardy, we do not find it a fit case to be interfered with."

Although Infocomm's legal advisers in the case said they would appeal against the TDSAT judgment, the company paid the penalty to the DoT. Minister for Communications and Information Technology Dayanidhi Maran welcomed the judgment and said: "Our position stands justified because the Department of Telecommunications always thought that a lot of illegal call routing was done. That is why we fined them (Reliance) Rs.150 crores." He also noted that the TDSAT was "the ultimate authority on telecom disputes".

According to a top source in BSNL, Reliance owes BSNL more than Rs.260 crores as a result of these violations. An MTNL source told Frontline that the company's claims are almost Rs.350 crores. Industry sources said this amount could go up if calls that landed in the cellular networks of other service providers were also taken into account.

The judgment has come as a shot in the arm for the publicly owned telecom companies, which have always asserted that the TDSAT is the appropriate body for adjudicating the dispute. A TDSAT judgment of January 2005 ruled that the TRAI Act would prevail over other legislation. It ruled that a special law enacted for the telecom sector would prevail over a general law. This has significant implications to the Infocomm case because it upholds BSNL's assertion that the TDSAT is the appropriate forum for deciding the illegality or otherwise of the company's call routing scheme. It had, instead, argued that arbitration proceedings were the appropriate method.

The judgment is also a blow against Infocomm because it has punched holes in its explanation for the manner in which it routed its calls to India. It is clear that in judicial terms the case effectively shuts the door. However, it remains to be seen what action the regulators and political authorities take now that it has been established that serious transgressions occurred.