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The tariff tangle

Published : Jun 06, 2003 00:00 IST

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Minister for Telecommunications Arun Shourie at the launch of the MTNL's Garuda 1x mobile service in New Delhi on May 17, World Telecom day.-KAMAL NARANG

Minister for Telecommunications Arun Shourie at the launch of the MTNL's Garuda 1x mobile service in New Delhi on May 17, World Telecom day.-KAMAL NARANG

Governmental intervention reduces partly the TRAI-mandated tariff burden on the users of BSNL and MTNL landlines, but the two state-owned companies are being increasingly disabled by a policy regime designed to promote private operators.

MILLIONS of telephone users in the country, particularly those who had not turned mobile, were bracing themselves for the utter confusion that May Day would bring with the implementation of the Telecom Regulatory Authority of India (TRAI)-mandated tariff revision. Confusion soon gave way to anger as it became clear, despite a plethora of tariff packages offered by multiple operators and services, that more than 40 million users of the plain old landline telephones would bear the brunt of the steep increase in telephone rates. It required the intervention of the much-maligned "political class", especially of those at its highest level, to roll back the tariff hike effected by the technocrats at TRAI. Having pursued a liberal agenda in the telecom sector for a decade, the political masters turned to the two main government-run companies, Bharat Sanchar Nigam Ltd. (BSNL) and Mahanagar Telephone Nigam Ltd. (MTNL), to provide relief to the angry subscribers.

BSNL and MTNL, whose network is virtually synonymous with the Indian landline telephone network, were widely perceived as the victims of TRAI's latest tariff revision order. The tariff escalation, proposed by TRAI in January, was seen as being in favour of the private cellular and limited mobility operators, forcing BSNL and MTNL subscribers to migrate to the platforms offered by private operators (Frontline, February 14, 2003).

The tariff increase that threatened landline telephone users was a comprehensive one. While calls were to be metered on a two-minute pulse, down from a three-minute pulse (implying an increase of 33 per cent straightaway), the number of free calls by urban BSNL/MTNL landline subscribers was reduced from 75 to 30. The application of differential rates for BSNL/MTNL subscribers making calls to subscribers of cellular and limited mobile platforms also was a drastic measure. As a result, while a three-minute call from a landline in a metro to another landline in the same city would cost Rs.1.20, a call of the same duration to a WLL (Wireless in Local Loop) phone would cost the user Rs.2.40. A call to a cellular phone in a metro would cost the landline user Rs.3.60, while a call to a cellular phone in a non-metro area would cost the landline user a whopping Rs.7.20.

The nature and magnitude of the tariff increase meant two things for BSNL/MTNL subscribers. First, it put pressure on landline users to migrate to a cellular or WLL operator, in that order of preference, given the nature of the tariff revision. In fact, this started to happen soon after TRAI released its tariff order in January. There were reports of large number of "surrenders" of telephones by BSNL subscribers across the country, although company sources say that this has tapered off now. This has been attributed to the waning of the euphoria that surrounded the entry of Reliance as an operator with a pan-Indian image and offering low tariffs. The second implication of the tariff revision was that the two public sector companies found it increasingly difficult to cover the cost of operations in rural and semi-urban areas, where the revenue per line was low.

The new tariffs threaten to sound the death knell for the ubiquitous public call offices (PCO), which have played a major role in the telecom revolution in the country in the last two decades by making services available across the country. The lowering of the national long-distance or Subscriber's Trunk Dialling (STD) rates has made operations of PCOs unviable. Reports indicate that the rate of "surrender" of phone connections by PCOs had increased sharply in the last few months. Moreover, the inability of PCOs to let customers call within the Short Distance Calling Area (SDCA), which typically covers a distance of about 50 km and which PCO operators see as hugely popular, has reduced their clientele.

BSNL's ability to raise revenues from other operations such as those of STD lines had already been undermined because of the cuts it was compelled to make in tariffs in order to maintain their attractiveness with respect to the rates offered by cellular operators. BSNL's current dilemmas also arise from the fact that it has to depend on the now privately owned Videsh Sanchar Nigam Ltd. (VSNL) for carrying its international traffic. It has simply not been allowed to establish its own infrastructure, which would have enabled it to make substantial profits. More significantly, pressure from the government delayed its entry into the highly profitable cellular business. It was allowed to enter the business only in October 2002, well after the private players had entrenched themselves.

The problems of having an indifferent master have also compounded BSNL's woes. For instance, a senior technical officer in BSNL informed Frontline that the company's efforts to expand its cellular network in Tamil Nadu was delayed by bureaucrats in the Department of Telecommunications. He pointed out that the delay affected the quality of service offered to subscribers; BSNL also lost valuable time to search for subscribers. The Union Ministry of Finance has also denied permission to the two companies to draw tax benefits, a privilege that has been given to private companies investing in infrastructure projects.

THE proposed tariff increase came in for severe criticism in Parliament. Members of the ruling Bharatiya Janata Party joined the Opposition in demanding a review of the tariff proposals. In response to the Opposition's charge that he was planning to sell the two telecom companies, Union Minister for Telecommunications Arun Shourie told the media that there was no proposal to sell them. Faced with growing pressure, Prime Minister A.B. Vajpayee summoned Shourie for a meeting on May 12 in the presence of Deputy Prime Minister L.K. Advani, Union Finance Minister Jaswant Singh and the BJP president M. Venkaiah Naidu to assess the political fallout of the tariff increase, especially with elections to be held in the next few months in several States.

On May 13, Shourie addressed a media conference of BSNL and MTNL, to convey the news of a partial rollback of the tariff increase. The modified tariff means that the tariffs for calls from landlines to cellular phones would be on a 60-second pulse, instead of the earlier 30-second pulse. The number of free calls a month for BSNL's urban subscribers was raised to 50 from the proposed 30 and for rural subscribers from 50 to 75 calls. MTNL, which caters to subscribers in Delhi and Mumbai, also increased its quota of free calls from 30 to 60 a month. Although the tariffs appear moderate, they are still high when compared to the situation before TRAI's order was issued in January. For instance, a three-minute call from a landline to a mobile phone anywhere in the country will now cost the BSNL landline subscriber Rs.3.60, compared to Rs.7.20 mandated by TRAI, but it is still thrree times as expensive as it was before January.

On May 16, BSNL announced cuts in its cell-to-cell tariffs, estimated to be between 42 and 66 per cent, for the various plans that it offers to its cellular subscribers. The company has, despite its late entry, garnered a substantial market share in the cellular segment. By the end of April, the company had more than 26.45 lakh cellular subscribers, next only to Bharti, which has a subscriber base of 32.42 lakhs but which entered the business well ahead of BSNL.

Shourie distanced himself from the "political class", which he said was responsible for the rollback. He painted a gloomy picture for the two companies under his charge. He claimed that BSNL would lose Rs.3,476 crores because of the changeover from a two-minute pulse to a three-minute pulse for metering calls. He said that it would lose a further Rs.876 crores because of the increased number of free calls allowed to BSNL subscribers.

MTNL, he pointed out, would lose Rs.140 crores on account of the rollback. He warned that BSNL's ability to expand capacity will be "grossly affected", its effort to acquire new technology delayed, and its drained surpluses would impair expansion of the network in rural areas. Shourie said that the losses on account of the revised tariffs would wipe out BSNL's anticipated profits of Rs.1,000 crores in the current year.

A BSNL officer told Frontline that Shourie's conduct at the May 13 announcement "undermined the reputation of the two companies, which are desperately trying to recover ground in a rapidly shifting market". Shourie's critics, particularly those in the trade unions of the telecom companies, allege that the Minister has painted himself as a true-blue liberal in pursuit of a cause, untainted by compromises that politicians normally make at the altar of electoral politics. But such compromises also reflect a consensus in democratic space, bowing to overwhelming public opinion.

(This story was published in the print edition of Frontline magazine dated Jun 06, 2003.)

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