Reliance officials say those calls were part of its collect-call service called «home country direct service» and since such calls did not involve three parties — Reliance Infocomm, a foreign operator and BSNL — Reliance Infocomm wasn’t breaking any law as ADC is required to be paid only when these three parties are involved. Although investigations are still under way and it is too early to ascertain who’s right, this episode reinforces what many have believed for a long time: There’s a thriving illegal telephony market in India.
Ever since international long-distance (ILD) telephony was removed from the ambit of state monopoly with the divestment of India’s erstwhile sole ILD operator — Videsh Sanchar Nigam Ltd (VSNL) — to the Tatas (one of country’s largest industrial groups) about two years back, the ILD arena is getting increasingly messy. Over the past 10 months, the Telecom Vigilance Department has unearthed at least six illegal telephone exchanges across the country, which instead of hooking on to the normal telephony route via the BSNL-owned international gateway, has set up a parallel line using dedicated lease lines, satellites and ISDN (integrated subscriber digital network). The calls are received at the illegal exchanges using gadgets such as multiplexers and dialers and sent to mobile phones.
According to the country’s Department of Telecom, apart from cheating the government of its revenue, illegal exchanges pose a security threat. A recent Interpol report said illegal exchanges have possibly helped those involved in drug and human trafficking, gunrunning and money laundering. This was evident in countries such as Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan, which have seen a rapid increase in organized crime in recent years, the report said.
Experts say the fault lies not in the system, but with the telecom regulatory regime that has formulated a few lopsided and outdated polices. For instance, under the present ADC regime — perhaps the sorest point with private telecom operators — telecom companies need to shell out a hefty portion of what they earn, to fund BSNL. While this amount is large enough for long-distance calls within the country (about 60 paise on calls for which companies charge Rs2.50 per minute), it gets worse for international calls. Here, the companies have to pay BSNL Rs4.25 per minute on calls that cost Rs8–10. Given that the total value of international calls is in the region of $1.5 billion a year, it’s hardly surprising that private operators are tempted not to declare these calls to BSNL at all.
The question that now arises is why ADC exists at all? This is a concept enunciated by a Telecom Regulatory Authority of India (TRAI) order this year for creating a cross-subsidized system in which relatively high-cost long-distance tariffs are supposed to provide the surpluses in order to enable state-owned telecom companies like BSNL and MTNL offer local fixed-line calls at rates below cost. According to the order, ADC is to be paid only to fixed-line operators (which are all state-owned) since TRAI felt that they alone have been prevented by regulation from recovering costs while other service providers — like wireless phone operators and those offering limited mobility — are not compelled to fix tariffs below cost. The total ADC requirement is estimated at $3 billion annually, the bulk of which (about $2 billion) goes toward subsidizing the monthly rental fee of fixed-line subscribers.
Nevertheless, even as TRAI says that ADC serves a «crucial social cause» — that is, making fixed-line telephony cheaper for state-owned telecom companies that are the only ones that provide telecom services to vast stretches of rural India and hence make telecom affordable to the poorer segments of the population which cannot afford telecom at actual costs — experts say this a «lopsided» rule «whose time and utility is gone». Private operators hold that ADC is «grossly unfair». Says Reliance Infocomm chairman and managing director Mukesh Ambani: «Of a 99-paise call, my subscriber has to pay 80 paise as subsidy. What kind of a model is this? There has to be some public understanding on this.»
Many officials of private telecom companies and even some from BSNL admit that illegal telephony in India is inevitable and thrives because of the ADC. «Indeed, it is possible that companies are indulging in such arbitrage on national long-distance calls as well since shelling out a fourth or a fifth of your revenue to a competitor like BSNL is not a very attractive proposition,» says a senior official of VSNL, the erstwhile state-owned international call operator that is now controlled by the Tatas.
What also makes such «arbitrage» attractive from a private telecom company’s point of view, over and above the financial saving, is the fact that BSNL uses this money to compete against those very telecom companies that provide the ADC — for instance, by savagely cutting call rates. According to critics, the telecom regulator’s stand also makes ADC ludicrous. «Some months ago, when it was clear that the gray marketing of calls was skyrocketing, TRAI put out a consultation paper on ADC and discussed the idea of charging ADC as a flat revenue share of all calls, as opposed to the current system of levying varying rates on different types of calls,» says a telecom analyst.
This is why private telecom operators are now spreading themselves out across the globe. Reliance Infocomm has been setting up points of presence in New York and Los Angeles right from the time it started its international long-distance call services. The Tatas, after buying out the controlling stakes of VSNL (listed in the New York Stock Exchange) from the government, has spread out in the United States, the United Kingdom, Singapore and Hong Kong through subsidiary companies. By owning the other end of the network (collecting calls and sending them to India), they earn larger revenues. And since such calls do not originate from a third party, as laid down by the ADC rules, they are not bound to pay ADC to BSNL. But BSNL argues that even if a third party is absent in such call routing, since all private operators use the BSNL network for interconnecting to other operators, they are bound to pay the charge.
Even as the debate rages, TRAI has made it clear that it has no plans of removing ADC. But the regulator recently announced that it would announce a reworked package later this month, which would ensure «an increased fairness» by mandating that ADC is collected from calls from all access providers and not just those that involve fixed-line providers. It has also said that its revised ADC calculations will entail a «much lower quantum of ADC for private operators».
Indrajit Basu is a Kolkata-based equity analyst turned journalist with more than 12 years of experience in business/finance and technology journalism. Besides writing for Asia Times Online, he also writes for US-based publications, as well as IT companies.
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