Illegal telephony thrives in
India By Indrajit Basu
KOLKATA - Two weeks back, India's
Bharat Sanchar Nigam Ltd (BSNL), the state-owned
telecom service provider and the country's largest
telecom operator, made a stunning allegation. It said
Reliance Infocomm, the telecom subsidiary of the famous
Reliance group, which claims to be the
country's fastest-growing wireless telephony service provider, has
been cheating BSNL by passing off international calls as local
ones to avoid paying it the access deficit charge
(ADC).
BSNL alleged that Reliance Infocomm -
which runs its wireless integrated telecom service under
the Reliance India Mobile (RIM) banner - tweaked its
switches so that the caller identification devices of
RIM's international long-distance calls looked like
local calls at about 50 interconnect points - BSNL owns
these points that connect operators throughout the
country. Reliance has about 400 interconnect points with
BSNL. In the process, said BSNL, Reliance Infocomm
evaded ADC worth Rs1.2 billion ($26 million).
Reliance officials say those calls were part
of its collect-call service called "home country direct
service" and since such calls did not involve three
parties - Reliance Infocomm, a foreign operator and BSNL
- Reliance Infocomm wasn't breaking any law as ADC is
required to be paid only when these three parties are
involved. Although investigations are still under way
and it is too early to ascertain who's right, this
episode reinforces what many have believed for a long
time: There's a thriving illegal telephony market in
India.
Ever since international long-distance (ILD)
telephony was removed from the ambit of state monopoly
with the divestment of India's erstwhile sole ILD
operator - Videsh Sanchar Nigam Ltd (VSNL) - to the Tatas
(one of country's largest industrial groups) about two
years back, the ILD arena is getting increasingly messy.
Over the past 10 months, the Telecom Vigilance Department
has unearthed at least six illegal telephone exchanges
across the country, which instead of hooking on
to the normal telephony route via the BSNL-owned
international gateway, has set up a parallel line using
dedicated lease lines, satellites and ISDN (integrated
subscriber digital network). The calls are received at
the illegal exchanges using gadgets such as multiplexers
and dialers and sent to mobile phones.
According
to the country's Department of Telecom, apart from
cheating the government of its revenue, illegal
exchanges pose a security threat. A recent Interpol
report said illegal exchanges have possibly helped those
involved in drug and human trafficking, gunrunning and
money laundering. This was evident in countries such as
Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan, which
have seen a rapid increase in organized crime in recent
years, the report said.
Experts say the fault
lies not in the system, but with the telecom regulatory
regime that has formulated a few lopsided and outdated
polices. For instance, under the present ADC regime -
perhaps the sorest point with private telecom operators
- telecom companies need to shell out a hefty portion of
what they earn, to fund BSNL. While this amount is large
enough for long-distance calls within the country
(about 60 paise on calls for which companies charge
Rs2.50 per minute), it gets worse for international
calls. Here, the companies have to pay BSNL Rs4.25 per
minute on calls that cost Rs8-10. Given that the total
value of international calls is in the region of $1.5
billion a year, it's hardly surprising that private
operators are tempted not to declare these calls to BSNL
at all.
The question that now arises is why ADC
exists at all? This is a concept enunciated by a Telecom
Regulatory Authority of India (TRAI) order this year for
creating a cross-subsidized system in which relatively
high-cost long-distance tariffs are supposed to provide
the surpluses in order to enable state-owned telecom
companies like BSNL and MTNL offer local fixed-line
calls at rates below cost. According to the order, ADC
is to be paid only to fixed-line operators (which are
all state-owned) since TRAI felt that they alone have
been prevented by regulation from recovering costs while
other service providers - like wireless phone operators
and those offering limited mobility - are not compelled
to fix tariffs below cost. The total ADC requirement is
estimated at $3 billion annually, the bulk of which
(about $2 billion) goes toward subsidizing the monthly
rental fee of fixed-line subscribers.
Nevertheless, even as TRAI says that ADC serves
a "crucial social cause" - that is, making fixed-line
telephony cheaper for state-owned telecom companies that
are the only ones that provide telecom services to vast
stretches of rural India and hence make telecom
affordable to the poorer segments of the population
which cannot afford telecom at actual costs - experts
say this a "lopsided" rule "whose time and utility is
gone". Private operators hold that ADC is "grossly
unfair". Says Reliance Infocomm chairman and managing
director Mukesh Ambani: "Of a 99-paise call, my
subscriber has to pay 80 paise as subsidy. What kind of
a model is this? There has to be some public
understanding on this."
Many officials of
private telecom companies and even some from BSNL admit
that illegal telephony in India is inevitable and
thrives because of the ADC. "Indeed, it is possible that
companies are indulging in such arbitrage on national
long-distance calls as well since shelling out a fourth
or a fifth of your revenue to a competitor like BSNL is
not a very attractive proposition," says a senior
official of VSNL, the erstwhile state-owned
international call operator that is now controlled by
the Tatas.
What also makes such "arbitrage"
attractive from a private telecom company's point of
view, over and above the financial saving, is the fact
that BSNL uses this money to compete against those very
telecom companies that provide the ADC - for instance,
by savagely cutting call rates. According to critics,
the telecom regulator's stand also makes ADC ludicrous.
"Some months ago, when it was clear that the gray
marketing of calls was skyrocketing, TRAI put out a
consultation paper on ADC and discussed the idea of
charging ADC as a flat revenue share of all calls, as
opposed to the current system of levying varying rates
on different types of calls," says a telecom analyst.
This is why private telecom operators are now spreading themselves
out across the globe. Reliance Infocomm has
been setting up points of presence in New York and
Los Angeles right from the time it started its international long-distance
call services. The Tatas, after buying
out the controlling stakes of VSNL (listed in the
New York Stock Exchange) from the government, has spread out
in the United States, the United Kingdom, Singapore and Hong Kong
through subsidiary companies. By owning the other end of
the network (collecting calls and sending them to
India), they earn larger revenues. And since such calls
do not originate from a third party, as laid down by the
ADC rules, they are not bound to pay ADC to BSNL. But
BSNL argues that even if a third party is absent in such
call routing, since all private operators use the BSNL
network for interconnecting to other operators, they are
bound to pay the charge.
Even as the debate
rages, TRAI has made it clear that it has no plans of
removing ADC. But the regulator recently announced that
it would announce a reworked package later this month,
which would ensure "an increased fairness" by mandating
that ADC is collected from calls from all access
providers and not just those that involve fixed-line
providers. It has also said that its revised ADC
calculations will entail a "much lower quantum of ADC
for private operators".
Indrajit Basu is a Kolkata-based
equity analyst turned journalist with
more than 12 years of experience in business/finance and
technology journalism. Besides writing for Asia Times
Online, he also writes for US-based publications, as
well as IT companies.
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