The department of telecommunications (DoT) is reportedly moving the Telecom Regulatory Authority of India (TRAI) to allow it to raise rentals and local call charges for telephones. Its reasoning is that it will soon face competition, that it is now subsidising the local calls and residential subscribers and that the huge subsidies from the highly-priced international calls may disappear or be reduced because of the imminent decrease in the telecom accounting rates (TAR) being insisted on by international carriers under regulatory pressure (for example, the Federal Communication Commission in the US).It further pleads that it cannot cut costs because of over-staffing and because of the large amount of antiquated equipment it has, requiring greater maintenance than the latest electronic exchanges. All these are partially true, but the burden is entirely due to the deliberate resistance from within to measures that might have cut costs, modernised equipment and enabled it to introduce modernbusiness-management practices.
A much-needed reform is the corporatisation of DoT into statewide companies, retraining of its staff and putting senior officers in management schools to understand what business is, what prices and markets are. Both in the past and now, the opposition of officers responsible for the overall direction and management of the DoT for restructuring and reform is only too well known. Is it right for the DoT to expect consumers to pay for its inefficiency and criminal neglect of modernisation? Second, DoT has hidden inconvenient facts. Private companies pay a hefty licence fee, and that too not on the basis of number of customers they have. The DoT does not pay any licence fee. The private companies have to pay for radio spectrum they use for connecting customers to the network. They have to pay a royalty on the spectrum they use for inter-city and inter-exchange radio links. The DoT does not have these liabilities. If and when the private companies make profits, they have to paycorporate income tax. The DoT does not pay any tax on the huge profits it makes. Private companies have to acquire sites and accommodation at market rates, whereas DoT gets its sites by acquisition for public purpose at prices below market rates. Private telephone companies pay huge salaries to their employees, which DoT does not. The DoT talks of obligations like rural and remote-area telephones. Basic private telephone companies are not exempt from such obligations -- indeed, 10 per cent of the connections they give have to be in rural areas.
With so many advantages, exemptions and privileges not available to its rivals, DoT's plea for enhancing its rental and local call charges is shorn of merit. The regulator must insist that unless DoT cuts its costs by adopting means available to every other enterprise in this country, it shall not be entitled to any rental and call charge hikes.
The private players have, however, entered into the business in the hope and expectation that by means that had becomenormal in this country, they could influence the political decision-makers to help them out of the difficulty -- of course, for a very good price.The telecom regulatory authority is not a political body but a quasi-judicial and expert body. The prime reason for a de-monopolised regime in telecommunications is advancing a consumer's interests; not that of the DoT or the companies. The consumer can benefit and be protected only by competition on a level playing field between multiple suppliers of services. The regulator should insist upon cost-cutting and not revenue generation to meet costs. That is done by price regulation.
In telecommunications, there is no full classic market competition as yet anywhere. Independent regulators are, therefore, imposing price cap regulation. In this method, they select a basket of services for which the price index (telephone price index or TPI) can move in relation to the retail price index (RPI). The telephone price index must be a certain percentage points below theretail price index. The rationale is that in telecommunications, technologies and management practices are bringing down costs. Such reduction in costs must be reflected in prices. If the price rises far slower than the retail prices, then even if the company increases its profits, neither the consumer not the government should have any objections. This happy and wise regulation leads to a reduction in tele-service prices and at the same time increases the profits of companies.
The price-cap regulation protects the interests of all players. This is what the TRAI must impose on DoT. It should not allow rental rises without scrutiny of its costs, accounting and allocation procedures, its procurement and engineering practices and management structure. Finally, it must get mandatory commitments from the DoT for its corporation and end vestigial monopolies and unfair practices in relation to private players and customers.
(The author is information-technology advisor to the government of Andhra Pradesh)
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
