IUC regulation: TRAI again!

With many inconsistencies coming to the fore post-IUC (interconnection user charges) regulation, the Telecom Regulatory Authority of India has taken up its review. The IUC regulation and the tariff order issued by TRAI in January came into force from May 1; the tariff hike proposed by TRAI was rolled back under political pressure. As for the IUC, until the review process is complete, it will continue to remain in force in its existing form. Through IUC regulation, TRAI had finally put in place a cost-based interconnection charge regime that would allow all players to get termination charges. Cellular operators are now entitled to get Mobile Termination Charge (MTC) for calls terminating in their networks. The MTC, in effect, amounts to introduction of the Calling Party Pays (CPP) regime, which faced strong opposition when introduced earlier. The IUCs for origination, transit and termination are based on the cost of network elements involved in putting a a call through in a multi-operator environment. However, for long-distance calls, besides the network costs, the origination and termination charges also include the Access Deficit Charge (ADC) payable to the BSOs to compensate them for below-cost rentals and local call charges. The below-cost tariff of fixed line results from restrictions imposed on the BSOs for social policy reasons. Earlier, the surplus available due to higher longdistance tariffs used to compensate for the deficit arising on account of this. However, in a partial move towards cost-reflective tariffs, during the past two years, long-distance tariffs have declined 50 per cent to 90 per cent and the surplus available has been eroded by that much. Against this backdrop, TRAI has imposed an ADC on long-distance tariffs involving a fixed network on either side to compensate the BSOs for the access deficit. It must be noted that the regulatory conduct is flowing from the policy objective of promoting teledensity and getting more rural areas connected. Through recent regulatory edicts, TRAI has tried to move forward in this direction by determining an affordable level of fixed-line tariff, and by aligning tariff with the costs. Is there an alternative to ADC that the regulator could have devised? Ideally access deficit should be recovered from the Universal Service Obligation (USO) fund. Let all the operators pay a part of their revenue to this fund and all the operators who provide below-cost service because of policy decree be compensated from this fund. In this manner, the deficit would be spread across the telecom sector. Such a mechanism of meeting access deficit is less cumbersome and more equitable compared to ADC. However, at this juncture, the corpus of USO Fund is inadequate compared to the aggregate access deficit. In fact, the Fund became operational only recently and is being used for Village Public Telephones (VPTs) only. In an ideal IUC environment, each player declares its non-discriminatory interconnect offer, and industry self-regulates with the regulator's role limited to ensuring non-discrimination and full disclosure. The next best option would be to ask the incumbent to specify its interconnect offer and charges, and leave the rest to the first best option. The Reference Interconnect Offer (RIO) regulation issued by the regulator attempted to achieve the next best option. The RIO is to be issued by service providers with Significant Market Power (SMP) and prescribes the technical and commercial conditions for interconnection. While the charges are expected to be agreed between the seeker and the provider, TRAI chose to impose terms only if parties fail to negotiate. The operators, expected to arrive at these charges by mutual negotiation, could not arrive at a reasonable solution. In fact, there have been recurring disputes in the industry, with one operator snapping interconnection with the other, leaving the consumers disconnected. It is against this background that TRAI undertook the determination of IUC. Many issues have emerged post IUC regulation. One question is why should cellular and WLL operators pay for the deficit incurred on account of policy and regulatory fiat? The logic of ADC has also been questioned on the basis that this manner of cost recovery would create market distortions and might render some operators disadvantaged. Specifically, the imposition of ADC has rendered fixed-to-fixed STD calls costlier compared to that of other networks. This is already evident, given the tariff plans on offer. Whereas a cell-to-cell STD call is charged Rs 1.99 per minute for any distance, a fixed to fixed STD call, say for above 500 km, costs Rs 4.8 per minute. Introduction of MTC and reduction in pulse have made fixed to cellular calls expensive than before; in fact, by three times. As a matter of regulatory principle, none of the operator categories should stand disadvantaged due to regulatory intervention. As ADC is resultant of policy objectives, it should ideally be imposed across all operators. Notwithstanding various inconsistencies cited by different stakeholders, costbased charges and application of ADC will remain a part of the interconnection framework. Regulators in other countries, too, faced many challenges while the sector was being deregulated implying emergence of issues not unique to India. What is required however, is a quick and effective resolution of these issues which, in effect, throw up many challenges for the regulator. The foremost objective of the regulator should be to develop consistency of approach. This is suggested against the backdrop of recent developments ? reconsideration of the IUC regulation, abolishing forbearance and prescribing standard tariff for cellular and WLL(M) service, making approval of all the tariff plans mandatory, and revising the ceiling on the number of tariff packages. These developments have created confusion in the market denting the consistency principle of regulation. On the other hand, some regulatory interventions of the recent past were clearly unwarranted. For instance, not allowing MTNL to offer a 12-second pulse rate. It is important that the regulator does not aim to replace the market forces. In this regard, there is a need to make a clear distinction between what best can be achieved by market and what by regulatory fiat. Overall, developments on the regulatory front indicate a reactionary approach of the regulator. It is suggested that a proactive approach factoring in future challenges would go a long way in promoting certainty and healthy competition in the market.