The Hindu Business Line : Disconnect ADC

THE MOBILE TELEPHONY industry could well be faced with some uncertainty on future growth with the 18-50 per cent hike in the tariffs, depending on the plan, with effect from February 1. If indeed there is a slowdown, the cellular players will find it difficult to cope, especially in the wake of the impressive growth rates the industry has recorded in recent times. The immediate trigger for the hike, according to the mobile operators, is the Telecom Regulatory Authority of India-mandated Access Deficit Charge for connecting them to the networks of basic telephony players, in the instant case the incumbent public sector players BSNL and MTNL.

The mobile telephony operators' opposition to the levy is not without merit. First, they are right in claiming that it is unfair for TRAI to impose ADC on the private operators for the failure of BSNL and MTNL to fix tariffs/rentals in line with their costs. Second, with the entry fee for cellular services waived for them, BSNL and MTNL already enjoy an edge over the mobile players. BSNL's aggressive pricing has made it the third largest player with a 16.5 per cent share of the mobile market (as of December 31, 2003). Finally, the ADC computed at 10-12 per cent share of the sectoral revenues is considerably higher than that charged in Europe and Latin America. In most developed countries, the ADC has been kept to the minimum as it only raises the overall industry cost leading to higher tariffs. Moreover, the lack of transparency has only sent poor investment signals for the telecom sector as a whole.

While introducing the new interconnect usage regime, TRAI claimed that ADC was necessary to compensate the basic operators (particularly, BSNL and MTNL) for their rural service obligations and low-paying subscribers. Since these costs could not be imposed only on the basic operators, it was being spread across all telecom operators. Second, TRAI also claimed that the ADC at Rs 5,400 crore had been scaled down to 10-12 per cent of sectoral revenues from 30 per cent earlier. But these arguments are not entirely convincing. One, these are policy costs, and if there is still any under-recovery of investment it is for the Government to compensate through subventions from the exchequer and need not be cross-subsidised by mobile telephony subscribers. Also, the principle of cross-subsidisation has no place in a market economy and is being dismantled elsewhere, most notably in the oil sector.

The cellular industry may have been somewhat muted in its opposition since the new ADC regime was announced by the telecom regulator back in October 2003. But that is no case for dismissing its representation now. Perhaps when the new usage regime was announced, the industry was preoccupied with the controversy over the introduction of unified licence involving conversion of limited mobility services into full-fledged ones. Now, with the unified licensing regime in place, the Access Deficit Charge has come to occupy the centrestage. The issue needs to be re-examined objectively by the regulator in the light of current economic wisdom instead of pandering to emotional arguments on rural connectivity.

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