Sucheta Dalal :Should TRAI be sacked?
Sucheta Dalal

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Should TRAI be sacked?  

June 6, 2003

A Consumer Viewpoint : Should TRAI be sacked? 

By Achintya Mukherjee

Hon. Secy. Bombay Telephone Users Association (BTUA)

The chaos in the telecom world created by the Telecom Regulatory Authority of India (TRAI) is enough reason for citizens to demand that the Authority be sacked. In matters where TRAI is supposed to be supreme, vested with the full mandate of Parliament-namely to fix tariff and administer an interconnect regime- the Authority has been shamed into calling for rollbacks. In policy making where the Authority has powers only to recommend and the Government of India (GOI) has the powers to decide, TRAI has had the humiliating task of regulating these policies with built-in contradictions, and seeing its decisions repeatedly challenged in courts of law. 

Parliament should review the working of the Authority, the TRAI Act of 1997/2000 and the National Telecom Policy (NTP)1999. 

Parliament by abdicating its responsibilities to TRAI in the matter of tariff fixation, without prescribing any guidelines, has, in fact, encouraged the chaos we are witnessing today. Parliament has also become a rubber stamp for the whimsical policies of the GOI and the numerous Groups of Ministers who have usurped the power of the people and play to the vested interests of different groups. Consumers, Consumer Advocacy Groups (CAGs) and even Parliament have been totally kept out of the policy-making loop in telecom. The Bombay Telephone Users’ Association (BTUA), along with many CAGs throughout the country, therefore demands that there be a national debate on telecom policy and a review of the working of the TRAI Act 1997/2000. The country also needs to re-examine the National Telecom Policy (NTP) 1999, and to ask the question whether the objectives enunciated therein will ever be fulfilled if the whimsical functioning of TRAI and GOI continues in this manner. 

The Regulator is a pliant instrument of the GOI. 

All regulatory bodies throughout the world have had the enviable task of encouraging competition, in the face of strong resistance from the incumbent, used to monopolistic practices. In India, after the brief encounters of the Justice Sodhi kind, the Authority has succumbed to the GOI which decided to erode the independence of the regulator through amendments to the Act. Since then, the more than pliant babus of the Authority have played the government’s game to quiet perfection. 

Spectrum has not been used for national objectives. 

Spectrum, which is supposed to be a scarce national resource, has been used for making cellular mobile systems into a premium service. They have been used as a tool to generate revenues for the GOI through the telecom sector and increase the digital divide. No national obligations have been imposed on this sector for goals of teledensity. As a result, India boasts of a cellular subscriber base of 12.6 millions. The Chinese do not boast. They have more than 200 million cellular subscribers and their numbers continue to increase. 

 

Built in contradictions in the licensing policy. 

As a result of the preferential absence of obligations, imposition of high license fees were made the order of the day for cellulars. But it has conflicted with an issue which is very important for consumers-namely technology neutrality. Though the CODE DIVISION MULTIPLE ACCESS (CDMA) technology has the capacity of national roaming, consumers were arbitrarily denied this through the artificial restriction of limited mobility for WLL subscribers, to be used only in their local area through a platform called V5.2. It was GOI policy implemented by the Regulator, and all of us are aware of how complicated this controversy has become, making it difficult even for the courts to decide. 

Revenue generation of GOI has led to cellulars becoming uncompetitive.  

In practice, the two technologies namely, cellular Global System for Mobiles (GSM) and WLL (CDMA) – are fully capable of providing cheap, competitive telecom rates, and on a national scale. It is the history of the licensing policy which stands in the way for the benefits that they could provide to consumers. With a legacy of high licence fees already paid to the GOI, and continuing contributions to revenue generation for the government in substantial terms, the cellular mobile systems have been made uncompetitive. Since they started as a premium service, smaller sizes of operation in both geographical and investment terms were considered financially viable. At that stage, the Incumbent (BSNL/MTNL) was also not on the cellular scene. The entry of the last basic service operator into the scene, with their financial capacity to invest substantially, their ability to derive maximum leverage because of volume business which they were targeting nationally and internationally, and their import of the state of the art CDMA technology, queered the pitch for the premium operators. The last entrant, with a judicious mix of fixed line systems in fibre optics and wireless technology, without the burden of huge licence fees, was able to provide state of the art facilities to consumers at dirt cheap prices. The cellular operators with lesser financial muscle, operating in smaller circles, realised that individually they would be no match for these changed condition and thus went into forming an informal cartel.  

Protection of the Incumbents (BSNL/MTNL) is protection for the ruling classes. 

The new entrant, through the capacity to implement a national plan with modern technology, also became a cause of concern for the Incumbent, namely BSNL and MTNL. These PSUs have the full capacity of challenging any operator in terms of national coverage and introduction of the best technologies. Their problems lie with their decision making processes, the deviations from normal financial practices, their inabilities to take advantage of volume business, their corruption, the absence of motivation to impose cost cutting practices, their lack of professionalism – all liabilities of being subservient to the whims and fancies of a political system.

The consumer as the fall guy. 

As a result of the pressures that have been building in the opposing lobbies in the telecom sector, the Incumbent, the cellular mobile operators and WLL-cum-fixed line operators – and to continue with the basic thrust of GOI policy to use the sector for generation of revenues, the GOI and TRAI have decided to pass on the burden to of these compromises to the consumer, keeping all the service providers happy with a high cushion of profits – the goals of teledensity, competition, affordable prices, technology neutrality be damned. The IUC and ADC regime seek to protect the incumbent (BSNL/MTNL), ensure an informal floor price regime and deny the advantages of competition to the consumer.  

The Interconnect Usage Charges regime: What is it? 

Every consumer has the right to be connected to another consumer, even though the two consumers could be customers of different service providers. If there are several operators in the market place, and there has to be some order maintained, an interconnect usage regime becomes essential. Such a regime allows the Authority (TRAI), to insist upon interconnection; to examine if problems are being created by operators deliberately to thwart another operator from interconnection, either because of technical or commercial reasons; to ensure that the quality of service is maintained in the interconnect regime, and generally, to ensure fair play. It is particularly important for purposes of increasing competition, to prevent the Incumbent who has the largest market share from devising means to block competition and to protect its monopoly status.  

TRAI does not have a cost database after five years in the game.  

The assumption then is that if a consumer of one service provider has to use the system of another service provider to terminate his call to the latter’s consumer, the originating service provider should pay to the other, the cost of the use he makes of the latter’s system. To ensure the fairness of the charges levied on each other by service providers, it would be necessary for TRAI to firstly obtain data from all service providers, both their individual capital costs and operational costs, segment by segment – what is termed as “unbundled costs of the network elements”. Not only would the costs have to be obtained, but they would need to be audited in detail as any manipulations of loading/unloading costs into critical sectors for higher revenue generation or capture of market, could lead to deliberate distortions, designed to kill competition. The complicated exercise of such costing also needs data to be accumulated, not less than a year’s period for the analysis to have any validity. TRAI officials admitted to CAGs that they would need one and a half to two years for this exercise to lead to significant conclusions. TRAI was set up in 1997. For five years until December 2002, it did not find it necessary to set up the system, collecting costing data. It is strange that for an organisation mandated by Parliament to fix tariff for telecom services and administer an interconnect usage regime, the Authority could post an order on Separation of Accounts for service providers, only on December 28, 2002. 

 

TRAI and cost data collection from service providers. 

TRAI would have managed to obviate that requirement as well, in spite of the pressures for cost data from CAGs, but for the developments of December 2002 when a new entrant sought approvals of their very competitive tariff plans. Till then, cellulars were most reluctant to provide data on costs to TRAI. TRAI was also happy to keep up the façade that all attempts were being made to obtain cost data from them. GOI used them as a premium service and TRAI, though fully aware that their tariffs were well above costs, were willing to toe the GOI line by taking the technically correct position that their tariffs were cost based, giving the impression to ordinary consumers that there was no scope for TRAI to work for lower tariffs. By opting for forbearance on their tariffs, TRAI had seemingly avoided the necessity of calling for their cost details. In the fixed line system, the dominant operator was the Incumbent (BSNL/MTNL) with 98% market share. All the data needed for the fixed line system could continue to be the fabricated data provided by them. Once again, it was the new entrant, who threw into confusion every other operator, including the Incumbents (BSNL/MTNL) and even the Authority. Until then, the statements of the then Chairperson of TRAI were meant to project the picture that the Authority was working on the task of data collection, but was not really successful. Imagine the Chairperson of TRAI, mandated with the authority of the Act, to demand and obtain any and every data from all licensees, whining away publicly that “we have, however, been experiencing serious difficulties, as either such data was not readily available with the operators, or there are some reservations on their part in providing these to us”. According to the Legal Advisor of TRAI, the Authority (TRAI) had the power to call for the information, but no authority to penalise any service provider if there was failure to do so. 

Does the IUC regime have a bearing on tariff? No. 

It would appear logical that if, as a consumer of a fixed line system, I terminated my call to a consumer of a cellular service, then my service provider (the fixed line system) should pay the cellular operator for the work his system did to terminate that call. It would also appear logical that I should be charged for the work done by the cellular at the other end. And so TRAI has determined that under the IUC regime all consumers pay additional costs to Cellulars or WLL operators if they call the latter’s customers. But it is necessary to expose this for what it really is- a brilliant decoy to generate additional revenues for service providers and creating confusion in the minds of consumers. In this scenario what TRAI does not tell the consumer is that if a service provider pays to another for the cost of terminating his call, he also receives from that service provider, payments for the work his system does for the latter. In other words, there are two revenue streams, outgoing and incoming. He collects from customers all the payments he has to make to others but does not give the credit to his customers for the money he receives from other service providers. When the market shares are balanced- that is, service providers have about equal number of subscribers- the two revenue streams balance each other out. Thus, in reality, it is not an additional cost to the service provider, and therefore, not an additional cost for which his consumer should pay extra. The IUC regime is only an arrangement between service providers for accounts settlements between them and they do not have a direct bearing on tariffs for the consumer. 

The marginal difference, if any, can be absorbed. 

Until today, when in reality, there was only a single operator in the fixed line system, the call originator, call carriage provider and the call terminator was the same- namely, the Incumbent (BSNL/MTNL). All these operations incurred costs which were accounted but received by the same operator. In a multi-operator scenario, the cost of termination would only have to be transferred to another. However, if the cost of this has to be paid externally to another operator, it would necessarily mean that for the Incumbent (BSNL/MTNL), there would be that much less work done by his own system, and therefore he would incur that much lesser cost within his own system since that work was being done by some other. Logically, the costs of such external payments could therefore be easily absorbed by the Incumbent (BSNL/MTNL) itself. For all new entrants, considering the much lesser capital investment per line, not only would their accounting settlements balance each other’s payments, but costs of absorption would be far easier, as their costs are much lower. 

In reality, TRAI is protecting the Incumbent (BSNL/MTNL). 

What TRAI has done is to essentially protect the Incumbent (BSNL/MTNL). These two organisations together control 98% of the market in fixed lines. Their 40 million lines far outstrip the capacity of all cellular mobile operators who together command 12.6 million subscribers. Originally, in the Mobile Party Pays (MPP) regime, for every call that landed on their fixed line system, the Incumbent (BSNL/MTNL) received the equivalent of Rs.1.20p. for a call of 3 minute duration. This was a substantial income. As the system has now changed to the Calling Party Pays (CPP) regime, the Incumbent (BSNL/MTNL) would have to pay for calls made from their system into that of the cellular operator’s system, just as they would receive payments for calls made into their system (to pay Rs.0.30 and to receive Rs.0.50 per minute). Most fixed line subscribers are careful users of their lines as they have low budgets. In all probability, they would even ask for dynamic locking systems to control outgoing calls to cellular and WLL users. In such a scenario, the incoming revenues for cellulars would go up but not substantially. At the same time, cellular users would necessarily have to remain in touch with the fixed line users since the proportion of fixed line subscribers is much higher. It follows that calls landing on the fixed line system (the Incumbent’s) would be much higher. The differential of 20 paise per minute multiplied by the larger number of lines at their command would continue to protect the Incumbent’s (BSNL/MTNL) revenue. In a way this strengthens the monopoly status of the Incumbent (BSNL/MTNL). 

Compromises at the cost of the nation, its citizens, its consumers. 

As compared to the earlier receipt of Rs.1.20p per call of 3 minute duration and no payments to cellulars, now the Incumbent would be receiving 20 paise per minute differential or 60 paise per 3 minutes which is lesser than before. This was the compromise that TRAI had to work out between the service providers because the demand for a level playing field was persistent from the cellular lobby. The compromise was at the cost of the consumer because he would now pay a total of Rs.1.50 for the same number of transactions (calls) in the system, only now, it was spread between two sets of consumers (the fixed line and cellulars) when earlier only the cellular subscriber paid Rs.1.20 for a smaller percentage of transactions (calls). And for this booty, the nation and its citizens received nothing for the profits that business would make out of this scarce resource-a resource that was the property of all its citizens. 

The cloak of average costs is dangerous to subscribers. 

TRAI has been hiding real costs under the cloak of average costs. It would appear that when I am asked to pay 30 paise extra per minute to a cellular operator for using his system, his costs would be that much. But does it appear logical that costs of a cellular operator with a national presence and the costs of a cellular operator with a presence only in a limited circle, could be the same? Why do some operators make substantial profits and some others are in the red? Common business sense cannot allow anyone to accept the proposition that all service providers in cellulars or WLL or fixed lines would have uniform costs equal to their competitors in their own category of service. For an integrated service provider, the efficiencies they could achieve could project a completely different picture of much cheaper costs. And the IUC regime must reflect these differences of costs. TRAI would only have to ensure that no service provider was permitted to go below his actual costs plus commonly agreed margins of profit. The reason TRAI has worked out such average costs is, in the first place, it does not have the real “unbundled costs of the network elements” of each operator. Secondly, the approach of averages reduces the risk of challenges of facts and calculations of each individual operator’s case which is more than possible given the poor homework that TRAI has done in this area. Thirdly, averages have built in cushions because it has to satisfy all service providers and therefore has to have the highest denominator of costs. For the consumer, it not only, increases his costs, but forces upon him the lowest common denominator of efficiency. Instead of making the IUC regime a realistic measure of efficiencies and thus a reflection of competitive possibilities, TRAI has designed it to choke off competition to the Incumbent (BSNL/MTNL) in terms of financial advantage to consumers. The consumer will thus have to choose only on the grounds of quality of service which will do nothing to erode the monopoly status of the Incumbent (BSNL/MTNL). 

Cushioning is for the service provider and competition be damned. 

Individual service providers have no compunction then for falling into line as they are in the business to only maximise their profits. They are happy not to complain, because if the GOI and TRAI are not interested in the welfare of the common subscriber, it cannot be their bother. They are in the business of business and not entered the sector with altruistic intentions of consumer service. Even it is one of their concerns, they have no reason to make an issue of it. But what consumers must understand is that if a service provider is not allowed to pass on the benefits of his efficiencies to the subscriber, TRAI is working against the principle of competition. TRAI is deliberately working towards floor prices because it is easier to satisfy a few service providers, including the Incumbent and GOI, convincing all of them into sharing the loot. For the ruling classes, it is dangerous to pass on the surpluses of efficiency to the common man, his smaller community and to allow him to use these extra resources for improvement of his immediate environment. The more the benefits to the common man, more his desire for democratic functioning of the system, and consequently, less the power of the managers of the political system. 

TRAI has been consistently working against consumer interests. 

In tandem with the GOI, TRAI has been consistently working on behalf of vested interests-whether it is the Incumbent(BSNL/MTNL), or the cellular operators or the WLL service providers.

Firstly, TRAI has deliberately blocked competition. A new entrant was forced to change their original plan to offer consumers, connections with free calls, no rentals and cost of instrument included, for a period of 36 months, at an all-inclusive cost of Rs.15,000/-. The ultimate cost to the consumer for these connections finally, more than doubled by the time negotiations with TRAI were through. It would be surprising to accept the argument that the service provider had not worked out their costs properly before their public announcements. In the business world, most persons in the know are aware of how cost conscious and financially sharp their top managers are in their dealings. But it was a strange argument that the former Chairperson of TRAI advanced to this author on December 23, 2002, when Consumer Advocacy Groups (CAGs) were called to discuss this “rebalancing” of tariffs for fixed lines. According to him, the service provider, in question, had deep pockets and this proposal floated by them was predatory pricing. Without going into a deeper discussion on the subject whether any service provider without deep pockets had any business to be in the business of telecom, this author countered that with the reluctance of TRAI to share data with the CAGs, it would be difficult for them to accept the TRAI view that the service provider was going well below their costs. On the other hand, it was difficult to agree with TRAI that theirs was predatory pricing. The party in question had no market presence at all at that point of time and could not be termed as a predator. At any rate, the author further argued that TRAI had all the powers to intervene at any stage, if there was a significant and dominating market share emerging in their favour. Consumers could not be denied the benefits of competition. The Chairperson did not respond to these arguments which clearly showed that the entire purpose of was in the direction of providing protection to the Incumbent (BSNL/MTNL). 

TRAI unwilling to share data with CAGs in spite of promises. 

The best thing that the Chairperson of TRAI could have done was to take the CAGs into confidence by sharing the data TRAI had collected, and convinced them that the service provider was indeed on the path of predatory pricing. TRAI is totally anti-consumer, because in spite of assurances to the effect that they would share data, they did not do so, afraid of the consequences for the Incumbent (BSNL/MTNL). Hidden in the vaults of the Economics Division of TRAI are explosive proofs of how competitive service providers in telecom can be, without predatory pricing. Consumers would be shocked to realise the extant of the fraud being played on them, if they knew that new entrants to the field with the state of the art technologies and the capacity to establish a national presence are in a position to offer connections with rentals as low as Rs.140/- per month and 20 paise or even lower rates for call charges per minute. 

TRAI does not force the roll out of a new entrant, discouraging competition. 

A second example of how TRAI is anti-consumer is shown by the reluctance to work pro-actively to promote competition. In the fixed line system, consumers actually do not have a choice of service providers. There are many consumers, anxious to change over to new service providers all over the country, given the poor quality of service that the Incumbent (BSNL/MTNL) provides. Unlike the Incumbent (BSNL/MTNL) which has a well established presence geographically and most consumers know their offices, the new entrants work only through websites and call centres. Indians, as a rule, do not trust any organisation which is faceless. We have examples of consumers who have applied for connections from new service providers even on the websites and have received no response for the better part of two years. This author therefore took up the issue with TRAI, insisting that the rollout plan that the operator is supposed to place before the authorities when applying for a license, be made public. It would be possible to then make applications and expect a reasonable time frame within which consumers could expect real choices if they were unhappy with the Incumbent (BSNL/MTNL). TRAI has maintained a total silence on these representations, once again proving that they are willing to talk about transparency but not really abide by the directions in the Act. This attitude can only help the Incumbent (BSNL/MTNL). 

TRAI refuses shorter pulse rates for local calls. 

Thirdly, the extant of the anti-consumer bias becomes more clear when TRAI steps in to refuse one of the Incumbents (MTNL), permission to be customer friendly. The ideal pulse rate should be every second for which respective costs should be calculated. The customer could then pay for as much he actually used the system. It is an absolutely fair basis of charges. TRAI went out of its way to scotch MTNL’s proposal to fix a pulse rate of 12 seconds for local calls on their WLL services-by no means something that was truly generous to its customers, though certainly path breaking. The former Chairperson of MTNL, Shri Rajagopal, had even publicly spoken of reducing the pulse rate for Internet users but nothing happened thereafter.

In this context, it is interesting to note how the Authority has framed the question on pulse rates in Section C: Tariff Issues on page 16 of the Consultation Paper 2003/1 of 15th May, 2003. Item 6(c) reads: “While tariffs may be on per minute or any other appropriate pulse, the IUC payments should be based on a per second basis”. The Authority makes sure that there are no discussions from the consumer’s point of view but only keeps the scope of the question as to how the service providers should be benefited. Given the fact that in all Open House sessions, consumers are outnumbered by service providers and “experts” 50:1, in whose favour the balance of opinion is likely to be is a foregone conclusion. This is also another example of how averaging out calculations is used against the consumer and the service provider is cushioned every step of the way. 

CAGs were promised data sharing. 

Nothing can be more conclusive of the anti-consumer approach of TRAI than their deliberate avoiding of the issue of data sharing with CAGs. The TRAI is mandated to be transparent in the Act itself. All CAGs registered with TRAI have been demanding, for the last two years, a transparency in the process of consultations. Amongst other things, they have demanded data sharing , both in the areas of costs and traffic, as also of Quality of Service performance evaluations. The former Chairperson of TRAI, M.S.Verma, under pressure for data sharing, in a letter to this author, dated 24 April, 2002, assured CAGs that “We, in the TRAI, have been endeavouring for the past few months to get operations and cost data from the operators, which could with suitable arrangement be shared with the consumer organisations…….The elements of essential data are presently being worked out which TRAI will share with the consumer organisations and the public. We are, in fact, working out a plan under which periodically essential data relating to growth of business and changes in the cost structures can be made public”. A meeting of CAGs was called in Chennai on June 9, 2003, in this context, but the brief discussions did not touch upon these demands. The CAGs presented TRAI with the nature of data that they would need to participate in the discussions on tariff questions. 

TRAI opted for forbearance in cellular tariff to avoid arguments in costs. 

Immediately thereafter, the Consultation Paper on Cellular Tariff was released. TRAI continued to remain silent on the question of data sharing during this entire period. CAGs regretted their inability to give their considered opinion on this issue in the face of continued opacity on the part of TRAI. To obviate the demand, TRAI very cleverly opted for forbearance on tariffs for cellular services and avoided the question of data on costs, justifying the step on the grounds of sufficient competition having been introduced which would take care of consumer interests. CAGs had their reservations about the alleged competitive conditions created in the market through the past actions of TRAI, as it was clear that all cellulars had been functioning as a cartel for quite some time. CAGs chose not to make an issue of it as cellulars had been treated as a market for high end users and not for the common man. 

CAGs brushed aside for data sharing on question of fixed line tariffs. 

When the Consultation Paper on Fixed line tariff revision came up for discussion, CAGs were short circuited by providing them little time to react. As a result of the criticism that followed, a fresh meeting of the CAGs was called on December 23, 2002 in New Delhi. All CAGs uniformly demanded a study of the relevant cost data before expressing themselves, and if this was not possible immediately, TRAI was requested to delay the decision to increase tariffs until such data sharing and consultation process was completed. The Authority saw it fit to brush aside these concerns and published their order of January 24, 2003, bringing into effect, the Interconnect Usage Charges and Access Deficit regime, generating a howl of protests from ordinary telecom users. In other words, the so-called consultation process was a sham. 

The introduction of the Access Deficit regime can be damaged if a Data Access regime is made a reality. 

In the next part of this Article, we would like to discuss why data is important to consumers. We would like to show how it is being used selectively to continue a high cost telecom service for consumers and why the myth of access deficits is being perpetuated.

(These views were presented by Mr.Mukherjee at the TRAI open house session in Mumbai on June 18, 2003. Sucheta Dalal is an office bearer of the BTUA. Email for BTUA: [email protected] )


-- Sucheta Dalal



 



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