Theft is not a bilateral issue

In a letter to Business Standard, the Telecom Regulatory Authority of India chief Pradip Baijal has said the reason why Trai is not investigating Bharat Sanchar Nigam Limited's allegations against Reliance Infocomm is that it has a staff of just 120 persons, as compared to the United States regulator's 3,500 and Brazil's 1,500, and so doesn't have an investigative arm.

In the event, he said Trai had asked the government to investigate the allegation that Reliance was passing off international calls as local ones in order to avoid paying BSNL the access deficit charge -- under the law, for all incoming international calls, operators have to pay BSNL Rs 4.25 a minute, and since this is around 80-90 per cent of any company's revenue from incoming calls, few are keen to pay this if they can avoid it.

What's ironic is the day Baijal's letter was published, The Financial Express had a story quoting a senior official as saying the government was not likely to interfere because "it is a fight between operators and they alone should resolve the matter."

Apart from the fact that a bilateral solution could well mean a political cover-up, the matter concerns all of us for another reason -- if BSNL is getting Rs 1,000-1,500 crore (Rs 10-15 billion) less ADC as a result of such theft by several operators, you and I will have to make good this shortfall through higher transfers from our taxes to BSNL or through continued ADC in the years to come.

Apart from the fact that a government investigation is bad in law (since the government owns BSNL, there is a conflict of interests and that's why Trai was created), the reason why Trai needs to investigate the matter, by getting more staffers if need be, is that the law mandates this.

Section 11 (1) (b) of the Trai Act says Trai has to ensure compliance with the terms and conditions of the licence, and regulate the sharing of revenue (such as the ADC) between operators. And Section 13 of the same Act says Trai can issue policy directions to ensure its orders under Section 11 are complied with.

And, to address the implicit issue in Mr Baijal's now famous "I am a regulator, not a policeman" quote, the investigation may not prove to be that difficult either since the law has ensured this.

Under 12 (1) (a), Trai can call any service provider "to furnish in writing" any explanation it wants, and every person in that company "shall be bound" to produce "all such books of account or other documents … (that have) a bearing" on the matter.

Indeed, the international long-distance licence agreement specifies books of accounts must be shown to Trai if asked for. So, if Trai asks, Reliance will have to explain, for instance, how it offers a US-to-India call for 11.9 cents (Rs 5.47) a minute to retail customers.

When it has to pay Rs 4.25 as ADC, 2-3 cents (Rs 1.15) for carrying the call to India, and another 30 paise as termination charges to the telephone firm in India to whose lines the calls are being made -- its bilateral agreements for bulk minutes with global carriers are even cheaper, by 15-20 per cent.

Under Section 12, if it wishes, Trai can even summon global long-distance players such as AT&T, British Telecom, and MCI, and ask them at what rates they sell international minutes to Indian companies like VSNL, Reliance, Bharti, and Data Access, as well as the quantity of minutes sold, and compare this with the minutes these companies declare while paying their ADC.

According to VSNL's latest annual report, the size of this grey market is 30-40 per cent, or around Rs 2,100 crore (Rs 21 billion) annually.

Ironically, Trai itself says the ADC for international calls encourages the grey market and lowering this is the only solution.

In its ADC order of October 29, 2003, it says: "The authority considers that the origination/termination charge for international calls has to serve the objectives of … a reduction of the grey area traffic. . . "

In another place, it says: "The Authority has decided to reduce the ADC component for the international long-distance calls for checking the increase in grey market and reduced ADC amounts should also reduce grey traffic."

And in its latest consultation paper on ADC, apart from repeating some of the ADC-leads-to-grey-market stuff, it says, "Variation in the ADC amount creates an incentive to misreport the category of calls, e.g. for roaming and long-distance calls."

Even if you assume the need to have an ADC (a bad idea, since it amounts to a subsidy), as Trai's latest paper itself says, the solution is a simple one. Instead of having such hugely differential ADCs-30 paise on some local calls, 30-80 paise on national long-distance, and Rs 4.25 on international calls--just have a flat revenue-share-based ADC.

Also, since phone companies get a flat Trai-mandated 30 paise per minute for calls that terminate on their networks, they don't really bother to see if the call coming on to their network is a genuine local one, a national long-distance one, or an international one.

If you allow them the freedom to negotiate this rate, however, no company will allow others to masquerade international calls as local ones -- believe me, all phone companies know where the illegal traffic is coming from.

Forget the phone companies with all their sophisticated equipment, even I know when I'm getting a grey call on my cellphone -- either the caller-ID on my phone goes blank, or I get fake numbers like 500 or 600 as caller IDs. Tackling the theft is easy, assuming the authorities wish to tackle it.

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