Loss to BSNL on rural landlines was more than Rs 8000 crore per year-Compensation given was only Rs 2000 crore per year
Earlier the BSNL submitted that the loss incurred by it for the rural landlines was Rs 8774 crore per year. But the TRAI recommended to extend a compensation of Rs 2000 crore only to BSNL for the losses incurred by it on rural landlines for a period of 3 years, with effect from 2008-09.
Now the BSNL requested lowest and even it is not agreed
Now that the 3 year period is over, the BSNL submitted to the TRAI for a compensation of Rs 2580 crore per year, with effect from 2011-12 onwards. But the TRAI, in its consultation paper No.9/2012 dated 26.04.2012 on support for rural wireline connections installed before 01.04.2012, has proposed for a nominal compensation of Rs 1500 crore for the year 2011-12 and Rs 1250 crore for the year 2012-13.
Pressure exerted by Indian and Foreign big capitalists
It is a fact that the BSNL is facing a loss of about Rs 8000 crore per year on its rural landlines which are commercially unviable, but maintained as a social obligation. Without the rural landline network of BSNL, it would have been impossible to provide internet/broadband services to rural areas. Therefore it is the responsibility of the Government to fully compensate BSNL for the losses incurred on the rural landlines. But due to the pressure from the foreign and Indian big capitalists in telecom sector, the Government has been continuously violating the assurances given at the time of the formation of BSNL for its financial viability.
Facts establishing the hollowness of the TRAI’s recommendations
The following facts establish how the TRAI recommendations and the consequent orders of the Government based on those recommendations are making BSNL more and more unviable.
- “Prior to IUC regime, BSNL had entered into revenue sharing arrangements with private operators as per the terms and conditions of the Licences granted to them which were also accepted by TRAI and prescribed in its various regulations. These revenue sharing arrangements were reasonably compensating BSNL for the cost of its various networks. As per these arrangements, wireless operators (WLL as well as mobile operators) were required to pass through their 95% i.e. Rs 1.14 per Metered Call Unit (MCU), revenues while making a call to the subscribers of fixed line operators as per the terms and conditions of their license. Further, fixed line operators were not required to pay any charges to mobile operators while making a call from former's network to latter’s network.” (BSNL’s comment on TRAI’s consultation paper dated 21.01.2008 on ADC)
- The “BSNL could have recovered an amount of approximately Rs 8000 crores per annum from the cellular operators and NLD/ILD operators if the pre-IUC regime would have continued. Thus, from the 2003-08, BSNL could have collected an amount of Rs 40000 crores from the Cellular Operators/NLDOs/ILDOs. Further, BSNL could have saved an amount of approximately Rs 9478 crores paid to Basic Service Operators (BSOs)/Cellular Mobile Service Providers (CMSPs) during the same period as per the IUC regime”. (BSNL’s comment on TRAI’s consultation paper dated 21.01.2008 on ADC)
- “However, during the same period, as per the IUC regime, BSNL has received an IUC (including ADC) amount of approximately Rs 29344 crores only. Thereby, there has been a loss of approximately Rs 20133 crores to BSNL due to implementation of IUC regime. This is because TRAI has not compensated BSNL on actual cost basis while calculating ADC in the various IUC regimes which is against the originally agreed principles of cost based IUC regime. BSNL has been representing against these arbitrary and unjustified decisions of TRAI from time to time but no relief has been provided to BSNL till date”. (BSNL’s comment on TRAI’s consultation paper dated 21.01.2008 on ADC)
- “The estimated payable amount of ADC by TRAI for BSNL was much lower than the ADC admissible to BSNL on the actual cost basis. Further, even the amount of ADC envisaged by the TRAI in the different IUC Regulations has not been received by BSNL”. (BSNL’s comment on TRAI’s consultation paper dated 21.01.2008 on ADC)
- As per the calculations of the BSNL submitted in its comments on the Consultation Paper dated 21-1-2008 of the TRAI, during 2003-2008 the total shortfall of ADC received by the BSNL in comparison to the ADC admissible was Rs 44210 crore.
- Therefore the BSNL requested the TRAI to make “fresh calculations on actual cost basis for the admissibility of ADC to wireline services and its continuation”. As per the calculations of the BSNL, there was “a requirement of ADC amount of approximately Rs 14000 crore for the year 2008-09” and “BSNL needs Rs 8774 crores per annum to just sustain the operations of its basic services in rural areas”.
- The BSNL further submitted that the TRAI’s approach treating ADC as a transient regime for facilitating the incumbent (BSNL) to transit from monopoly to competitive regime and give adequate time for tariff rebalancing was contrary to the actual purpose of ADC and was contrary even to the TRAI’s understanding at the time of introduction of cost based IUC regime in India in 2003. It was a known fact that the rebalancing of the tariffs of wireline services on cost basis would not be possible in the competitive regime and any increase in tariffs of rural landlines would not be sustainable.
- BSNL also submitted , “As per Authority’s own calculations, the cost of wireless networks is less than 1/3rd of the cost of wireline networks. Accordingly, the cost of termination of a call in wireless networks should also be 1/3rd of wireline network. However, TRAI has prescribed same termination charges of Rs. 0.30 per minute for both wireless as well as wireline networks in its Regulations. If the cost of wireless network is 1/3rd of the cost of fixed network, then the cost based termination charges for wireless services should have been prescribed as Rs.0.10 per minute only. The uniform termination charges have led to the undue enrichment to Cellular and WLL(M) operators. It is an undue advantage being given to the Cellular/ Wireless service operators to the disadvantage of BSNL. If calculated, TRAI may find that it is more than Rs. 7000-8000 crores per annum. It is beyond comprehension as to why such huge undue advantage has been given to the cellular and WLL(M) operators. Are they providing any below cost services and need compensation ? Is it not a form of ADC ? The plea given for this undue enrichment by the Authority that this additional amount will help cellular operators expand their business and improve quality of service, is totally unjustified and contrary to the cost based IUC regime. Authority may kindly note that provisioning of such implicit subsidy in the form of higher than the cost based termination charges is against the laid down principles of the cost based IUC regime. This favourable regulatory advantage of higher termination charges to the cellular operators is enabling them to provide lower tariffs thereby causing churn of BSNL’s customers and traffic and leaving no scope for any rebalancing of tariff by BSNL”. (BSNL’s comment on TRAI’s consultation paper dated 21.01.2008 on ADC)
- BSNL further submitted that the purpose of ADC and USOF (Universal Service Obligation Fund) were “entirely different to each other”. USO Fund was limited to to remote and rural areas with greater focus on VPTs whereas ADC has to be provided to all the wireline connections provided below the actual costs. It was earlier decided by the TRAI that ADC should not be funded from USOF since both are different. Relevant portions of the Consultation Paper of the TRAI dated 23.09.2002 on tariffs of basic services clearly mentioned that “the target of the USO fund is at present limited to remote and rural areas with greater focus on VPTs, while the access deficit arises in the case DELs in general i.e even in urban SDCAs, because of rentals being less than the level computed by cost based methodology”. Thus ADC and USOF are entirely different and ADC cannot be reduced or abolished by granting a pittance in the name of support for rural wirelines. As long as the rentals of landlines are less than the level of their cost, and as long as it is not possible to increase the rentals of landlines to the level of their cost, ADC has to be continued.
TRAI ignored all these facts and recommended drastic reduction in the compensation to BSNL
In spite of this request from BSNL based on actual facts, the TRAI did not increase the ADC for BSNL. On the other hand it recommended for abolition of the ADC and a support of Rs 2000 crore per year to BSNL for a period of 3 years with effect from 01.04.2008 to compensate the losses incurred by it for the rural wirelines installed before 01.04.2002.
It also recommended to grant this amount from USO Fund by amending the Indian Telegraph (Amendment) Rules 2004 framed under the Indian Telegraph Act, 1885 as below:
“ Provided from the financial year 2008-09 for household Direct Exchange lines installed prior to 1st day of April, 2002, eligible service provider shall be reimbursed Rupees two thousand crores (Rs 2000 crore) per annum for a period of three years.
Provided that the Central Government may after seeking recommendation of TRAI, on review; continue the reimbursement at the same rate or at a lower rate beyond three years, for a period as may be decided by the Central Government from time to time.”
Thus instead of the requirement of Rs 14000 crore per annum as ADC and the requirement of Rs 8774 crore per annum for sustaining the rural landlines, the TRAI abolished the ADC, granted Rs 2000 crore for 3 years with effect from 2008-09 and. It failed to show any reason for treating the ADC and USOF together and subsuming the ADC in USOF. It failed to justify how it subsidized the cellular operators by allowing termination charges on mobile networks on par with the termination charges on wireline networks when the cost of termination of a call in mobile network is only one-third of the termination of the call in the wireline network. It has shown no reason for calculating the compensation limited to the working wirelines that were installed before 01.04.2002, instead of taking the cost of the entire rural landline net work as the basis for calculating the loss. Without any sufficient ground, it ignored the submission of BSNL that it was facing a loss of Rs 8774 crore per annum on its rural wirelines. Moreover, it recommended that not only during 2008-2011, but also thereafter, the compensation to BSNL for the losses on rural landlines should not be more than Rs 2000 crore.
Fresh proposal of the TRAI for a nominal compensation making BSNL totally unviable
Now vide its consultation paper dated 26.04.2012, the TRAI has proposed for a support of only Rs 1500 crore for 2011-12 and 1250 crore for the year 2012-13 to BSNL to compensate for the losses incurred by it on the working rural wire lines installed before 01.04.2002. The aim of these recommendations appears to be for making BSNL completely unviable.
Unjustified proposal of the TRAI
As per the above said recommendations dated 27-3-2008 of the TRAI, the rural DELs installed by BSNL before 01.04.2002 were 90 lakhs. At the rate of the annual deficit of Rs 4876/- which is the deficit per line calculated by it vide its consultation paper dated 26.04.2012, the total deficit for these 90 lakh lines would be Rs 4388 crore. Out of these 90 lakh lines installed before 01.04.2002, only 40 or 50 lakh lines may be working now. But the actual expenditure would be incurred for the entire indoor and outdoor plant of rural exchanges, irrespective of the lines working.Therefore the loss should be calculated on the basis of the acual expenditure for maintaining the entire rural network-the revenue received on the rural services. Hence there is no basis for limiting the calculation of the deficit to the working lines installed before 01.04.2002.Accordingly, the calculation of the deficit of Rs 2580/- for the year 2010-11 submitted by BSNL and its drastic reduction to Rs 1500 crore for 2011-12 and to Rs 1250 crore for 2012-13 by the TRAI are nothing but a drastic underestimation of the actual losses suffered by the BSNL on the rural land lines.
In fact, the estimated annual loss to BSNL will be to the extent of more than Rs 8000 crore on rural landlines, as mentioned by BSNL earlier in its’ response to the TRAI’s consultation paper dated 21-1-2008. Moreover, the ADC cannot be abolished in lieu of the compensation for rural landlines, since they are entirely different.
TRAI should review its approach and recommend for full compensation to BSNL
Therefore the TRAI should review its approach on this issue, treat the ADC and USOF as entirely different, and should recommend for fully compensating BSNL for the wirelines, bth urban and rural, in view of the facts detailed above.
Therefore we request the TRAI to reconsider its approach on this issue and recommend the full compensation of about Rs 8700 crore per year to BSNL to compensate the losses it is incurring on the rural landlines.