The Telecom Regulatory Authority of India (TRAI) has begun the consultation process of reviewing the access deficit charge (ADC) regime for financial year 2007-08. Stakeholder comments are expected by the end of February.

The regime was originally put in place keeping in mind the social objectives in the telecom sector. The amount was initially pegged at over Rs 53 billion to help incumbent Bharat Sanchar Nigam Limited (BSNL) set up telecom infrastructure in the rural areas. However, it was understood that ADC would be a temporary arrangement and would not be continued in perpetuity. In 2004, it was decided that the ADC component would be reduced to zero by 2008-09 and would be subsequently replaced or merged with the universal service obligation (USO) regime.

Further, as per TRAI’s October 2003 regulation, an ADC review is required to be undertaken on an annual basis. Accordingly, the authority has brought out a consultation paper to specifically review the amount of ADC to be collected for the year 2007-08; the mechanism for funding/collection of the ADC amount, (for example, ADC as a percentage of revenue, per minute ADC on international long distance (ILD) calls); and the case for ADC to service providers other than BSNL for their fixed wireline operations.

Prevailing ADC regime
The prevailing ADC regime, notified by TRAI in February 2006, can be taken as a reference point. Under this, the total estimated ADC for the year 2006-07 was Rs 33.35 billion, of which Rs 32 billion was the estimated ADC for BSNL. For collection of the amount, TRAI continued with ADC rates for ILD traffic on a per minute basis. However, in keeping with the goal of reducing ADC, the rate was lowered from Rs 3.25 per minute in 2005 to Rs 1.60 for incoming ILD calls and from Rs 2.50 to Re 0.80 per minute for outgoing ILD calls. In addition to ILD calls, ADC was also applicable as 1.5 per cent of the annual gross revenue (AGR) of access providers and national and international long distance operators. No ADC was levied on revenue generated from rural wireline subscribers, that is, while calculating ADC as a percentage of the AGR of a unified access service licensee/basic service operator, the revenue from rural fixed wireline subscribers was allowed to be excluded.

Issues raised

Given the already established framework, TRAI has brought up for consideration whether it would be appropriate to maintain the present trend of reduction in ADC to BSNL for the year 2007-08 also. In the consultation paper, it highlights the issue of review of the ADC regime and raises the following questions for consultation:

  • Should the authority maintain the present reduction trend in ADC amount for the funding of ADC in 2007-08?
  • What should be the mechanism of contribution to the ADC?
  • Should other operators continue to be treated differently from BSNL in terms of the ADC regime applicable to them?

    • ADC collection options
    Some options for collection of the ADC amount as per the consultation paper are as follows:

  • A per minute charge on ILD incoming and outgoing calls can be imposed. In addition, ADC would be collected as a percentage of the AGR of telecom service providers. This is similar to the existing scheme, though it would be on a reduced scale.
  • A per minute charge can be imposed only on incoming ILD calls in addition to a percentage revenue share of the AGR of all telecom service providers.
  • Move to a revenue-share regime if the incidence of burden can be ensured on international calls.
  • Recovery of the complete ADC amount from ILD incoming calls on a per minute basis only and no ADC from percentage revenue share.
  • Recovery of complete amount of ADC from ILD incoming and outgoing calls on a per minute basis and no ADC from percentage revenue share.

    • Since ADC is a depleting regime, TRAI expects that a reduction in ADC rates would lead to a further lowering of telecom tariffs, apart from allowing sustained growth. Also, the reduction in the ADC rate for international calls would reduce arbitrage and hence there would be less incentive for an ILD grey market. This, in turn, would offer greater flexibility to service providers.