The Telecom Regulatory Authority of India (TRAI) has initiated a consultation process for phasing out the access deficit charge (ADC), which is levied on all national and international calls to fund Bharat Sanchar Nigam Limited’s (BSNL) operations in rural India, from April 1, 2008.

As in other countries, TRAI established the ADC regime when the sector was liberalised, to ensure the sustainability of the incumbent’s fixed line operations in a competitive environment. It instituted the framework of interconnection usage charge and the ADC in 2003 with the provision that the regulation was to be reviewed and revised annually, according to the prevalent industry situation. The regulation was amended in 2004 and 2006.

TRAI had excluded rural fixed line revenue from the calculation of ADC, as it believed that rural telephony warranted special attention. Access providers were permitted to retain the ADC generated by the fixed line business.

The total ADC funding till date, including the estimate for 2007-08, amounts to about Rs 125 billion. The total support provided to BSNL since its formation up to 2006-07 ?? in the form of reimbursement of licence fee and spectrum charges, moratorium on payment of interest, support from the Universal Service Obligation (USO) Fund, ADC funding and exemption on entry fee ?? was about Rs 315 billion.

The idea of instituting the ADC was not to make the incumbent perpetually dependent on support, but to allow it some time to adjust to the change from a monopolistic environment of government funding and cross-subsidisation to a competitive business environment. The temporary support was particularly necessary for setting up and maintaining telecom networks in the rural areas, which is an important social objective of the telecom sector.

The following were the key points of the ADC framework established through an elaborate consultation process:

  • ADC would be time-bound and would not continue in perpetuity.
  • ADC would be a depleting regime.
  • ADC would be reduced to zero in the year 2008-09.
  • ADC should be replaced or merged with the USO Fund regime from 2008-09.

    • While there was a stipulation of phasing out ADC by 2008, TRAI recognised the critical need to promote effective telecom services in rural areas. Thus, it brought out a consultation paper, inviting comments from various stakeholders on the following issues:

  • Do all agree to the abolition of ADC from April 2008?
  • Is there a case for providing support to BSNL from the USO Fund for its fixed wireline operations in the rural areas?
  • If yes, what would be a suitable framework for specifying the details of implementation ?? amount of subsidy, period of support, etc.?
  • Should TRAI, after the abolition of ADC, mandate a reduction in the entrylevel charges applicable to mobile subscribers in the rural areas?
  • Is there any other proposal for making mobile services more affordable for rural subscribers?

    • Deliberating on these issues is of vital importance. BSNL maintains a fixed wireline network with a large rural footprint and provides services in remote and farflung areas. It is important that this network is sustained and expanded, as fixed line operations in the rural areas are crucial in the age of information and communication. They are also needed to facilitate the growth of broadband services. Thus, if justified, support can be given to BSNL from the USO Fund for sustaining its non-remunerative rural operations.

    If the ADC is phased out, the savings that would accrue to the service providers may have the effect of lowering the entry barrier in rural areas and making the services more affordable, without disturbing the existing policy of forbearance in mobile tariffs.

    The amendments to the ADC regime, if implemented after due diligence, are likely to pave the way for lower telecom tariffs, higher growth especially in the rural areas, a reduction in the size of the grey market, and removal of market aberrations caused by ADC.