LIRNEasia was the only non-Indian entity that sent responses to the TRAI consultation paper no. 2/2008 dated 21st January 2008 on Access Deficit Charge (ADC).

Here, as the response to the first question LIRNEasia said

We agree with phasing out of the ADC. Our work on the subject in 2004-05 led us to advocate this same position by questioning if the ADC was merely ‘a politically motivated tax on private operators to protect the incumbent, its employees and its copper-wire access network during a very long transition to competition.’ 1 Today, in 2008, the need for the phasing out the ADC is much greater as there is no need for every new mobile customer getting connected to a network; who is more rural and less affluent, subsidizing a legacy wireline customer; who by virtue of having got connected early on is less rural and more affluent.

LIRNEasia lead economist Harsha de Silva also gives a critical analysis of the Indian experience on ADC in his book chapter in LIRNEasia’s new book ICT INFRASTRUCTURE IN EMERGING ASIA.

Click here to download the TRAI news release

Click here to download the responses to the TRAI Consultation Paper

Click here to view the chapter on ADC in LIRNEasia new book

The new softswitch – which upgrades Telecom Cook’s core wireless network to more efficient, IP-based technology in order to reduce costs and enable value-added services such as integrated SMS, voicemail, GPRS and pre-paid calling, has been in deployment since September 2007, and the final network cutover was accomplished last week. The UltraWave solution includes an overall expansion of the network’s capacity to 15,000 from 8,000 GSM subscribers.

Read the full story here.

(Background info: This group of islands in the South Pacific Ocean, about one-half of the way from Hawaii to New Zealand was named after Captain Cook, who sighted them in 1770. After being administrated by Britain and New Zealand, in 1965, residents chose self-government in free association with New Zealand. Total Area: 237 sq km, population: 21,750: The World Fact Book, CIA)

We are an evidence-based policy organization. We work around:
Inputs (money, people, etc etc)
Outputs (reports, training courses, etc)
Outcomes (positive changes in the policy process)

IDRC: Putting money into research organizations which produce knowledge produces development. Not just putting money into ICTs.

Ways that research can affect policy:
1. directly, by getting an actual policy implemented or changed (rare cases)
2. ‘enlightenment’ – where research brings enlightenment, providing new insights etc.

As soon as policy researchers cross over to political appointments, they become media-based scholars. For instance, more people are killed due to traffic accidents than university shootings, yet media overplays the latter and therefore there are a number of policies implemented with regard to the latter.

One model is that people are completely rational actors. Information goes in and comes out processed. No undue influence etc. then there is a range of political models and agenda settings – what is given priority? Then an interesting thing which isn’t included here – information subsidies – every morning you walk around the regulation agency giving coffee and offering verbal info or giving a piece of paper etc – easier than finding on the web.

The overall framework consists of three dimensions. It includes the process of evidence based policy making/regulation, the recipient of this evidence and the communicator of this work. The recipients line maybe extremely concentrated on one centralized entity like Pakistan (low fragmentation) or be middle ground like India and places like Sri Lanka where there are too many players and nobody know’s what is going on (too fragmented).

Discussion of case studies:Indonesia:
Goal was to introduce competition in the Indonesian retail internet, domestic leased line, IPLC thereby bring about lower prices.
Fragmentation of stakeholders – Dominant government entity, policy maker is DGPostel. BRTI the regulator is a weak body as it requires DGPostel approval to act.
The quality of data seems to be of very high quality a lot of time was taken to standardize leased line prices. In the end it showed that Indonesia was 48 times for expensive than India which was repeated all over in multiple forums etc.
The result was partly very successful – companies dropped retail prices up to 63% and allowed competition in the international market.

India:
The goal was to influence the universal service and Access Deficit Charge policies.
Fragmentation of Stakeholders – policy maker is DOT, but TRAI has resources, consultation process, etc.
Quality of Data – 2004 and 2005 studies carried out by LIRNEasia on regulation and investment in India, and India’s universal service and ADC respectively.
Communication of the research directly to the regulator.
Result – Specific use of LIRNEasia language by TRAI in their recommendations to DOT. By December 2006, ADC and USO policy changes.

HazInfo:
Goal was to implement an early disaster warning system for Sri Lanka.
Fragmentation of Stakeholders was high – multiple government organisations involved.
Quality of data was also high because participatory research was carried out by LIRNEasia.
The strategy used to communicate was effective, aggressive and immediately after the tsunami. Media, public hearings/meetings etc were held.
However, the result has been a failure. No government participation in providing a nationwide early warning system for Sri Lanka.

PM: specifically looking at subsidy mechanisms for diversification, hence ‘moving beyond the market . Instruments looking at are hte universal service obligation fund (USF) and hte access deficit charge (ADC). There has been a diminishing of market efficiency gap (i.e, efficiency is improving). Slide # 3 shows the major improvements in efficiency in the market. However there are still further improvements that can be made. Increased focus on cellular mobile infrastructure deployment: 68.81 percent growth vs 6.6 percent Rural DELs installed by BSNL through license fees relief – about Rs. 1 m has been compensated, in the form of reimbursements from license fees Access gap is evident, and affordability is a concern. current ARPU are inadequate to fund necessary capital to expand to rural areas. Mobile operators and others have come to accept that the only way to grow is expanding service, rather than reducing tariffs. operators come to accept taht the only way to grow is via network exansion (thus need capital) rather than lowering tariffs any further. USOs are imposed b/c traditional funding mechanisms (based on cross-subsidising) don’t work in competitive environment. Funding mechanisms: USO Fund (USF) Access Deficit Charge (ADC) Government Funding: Grants and License fee waiver Roll-Out Obligations: Access Providers to cover 50% of DHQs and NLDOs to set-up POPs in every LDCA (not been very successful) [Slide# 8]one achievement of hte USO policy has been the Expediting of disbursements effectuating universal service policy Status of various USO Projects in India: 1. Village Public Telephones – Approximately 520,000Villages, but most not working, ie, not getting support. 2. Replacement of Multi Access Radio Relay Technology VPTs installed before 1st April 2002. 1, 80,000 MARR VPTs – the technology was defunct, thus these VPTs were replaced. 3. Provision of additional rural community phones (RCPs) in areas after achieving the target of one VPT in every revenue village (2nd VPT). (1st time it went below the benchmark) 4 Provision of VPTs in revenue villages as per Census 1991 without any public telephone facility. this was a Greenfield project. 5. Provision of rural household direct exchange lines (rdels) in specified short distance charging areas – private phoes to rural households. biggest achievement is that the bidding brought down the cost of the project by some 60%. before april 2002, no funds were disbursed. funds were tricking through by 2004. after 2004, Rs. 1200 crores (266 million USD) have been disbursed. have almost 6,000 lying in fund, only 1700 spent, 1200 pledged — inefficient. Costing Model: Determination of Benchmark: – most of the data has been provided by the incumbent Alternative Proxy cost model selected b/c its more inclusive. Issues that we have identified I believe access via public phones is a better way to provide universal service rather than subsidy provision for private telephones. USO disbursement were not technological neutral. Costing Model: Determination of Benchmark: – most of the data has been provided by the incumbent The auction mechanism have given advantages to the incumbent. Costing models didn’t allow fair treatment—cause costing data was based on incumbent data. The auction process itself was very complex and not very transparent. There are huge amounts of market efficiency gaps in India. If it were reduced it will result in greater affordability and general efficiency. the last point is about backbone is extensive in India. GAIL, Railways etc have also backbone. If you have effective cost-based access regime you will have lower costs in terms of USO projects and also greater usage of backbone lying fallow. Marketplace is distorted by subsidies and many cases don’t allow for more efficient market-based solutions. There is greater asymmetry between incumbent and newcomers when they are auctioning for USO. The next section on ADC by Harsha de Silva. Giving access to rural people through ADC is another mechanism for extending network. ADC is subsidy per minute for high cost areas. Is there wisdom for having a price ceiling in rural areas? Is having tariff ceiling necessary? The problem is the government created inefficient system. So unlike urban area where there is a market clearing price—it is not the case for rural areas. Most places use cross-subsidies (long distance revenues to rural access). India’s ADC regime has most of the features of ADCs in other countries. The ADC levy is extremely complex based on many factors—distance, which circle, whether mobile, fixed or WLL etc. The ADC regime favored technologies differently and hence created unequal paying field for the players. It also created a system that was extremely complex. The whole calculation was based on BSNL costing—there are lots of budget grants etc. one needs to take into account all these things to have a accurate picture of the cost of doing business. Question asked was should ADC be restricted to BSNL and fixed line operator or also to mobile operators and others. The 2003 consultation outcome was that the cost calculation was wrong and should no to be based on historical costs of BSNL but forward looking costs. But said they would transition to forward looking costs in the future. In feb 2004 it was implemented. There were many problems that cropped up—billing system out of whack, CLID info was not available, couldn’t identify bypass etc. So TRAI said it wasn’t working and said lets simplify by not including distance in the model and proposed a new ADC. They came forward with revenue sharing model. But this proposal was torpedoed by operators and others. So TRAI reverted back to existi g plan of cost based. So a new tariff structure was developed. So subsidy was one figure –30 paisa. The drop in international drop was nearly 60% drop and national long distance drop was 40%. Then the most pertinent was asked in 2005—should ADC be only for rural fixed line? BSNL opposes the ADC reduction “telecom provider of last resort!” Annual revenue loss of INR 12.5b [TRAI calculations] INR 79b [BSNL calculations]; arrears INR 110b MTNL asks for urban ADC. Which doesn’t make much sense. Tata asks for combination of ADC and USO. Reliance argue that there is no econ rationale for ADC in India. Reliance is arguing that to go only with USO and scrap ADC. Some issues: ADC is creating a grey market, Whenever there is a conflict between dumb regulation and consumer benefit, it is regulation that should yield space, not the consumer. ADC is conceptually complicated and the bjective not clear. Technology bias defeats the purpose of extending access. ADC also encourages parallel markets ADC is a nightmare to implement and the constant changing of the rules of the game [2003 May, 2004 Feb, 2005 Feb, 2005 when again…] ~ not conducive for business We recommend that ADC should be merged with USO on a simple, technology neutral, revenue share model.

“We are looking at amending the Telegraph Act to accommodate the cellular services and CDMA-based services to reach the rural areas. We are looking at sharing of the passive infrastructure with the cellular service providers,” communications and information technology (C&IT) minister Dayanidhi Maran told reporters.

Besides covering the villages, the minister is of the opinion that the wireless services should also provide connectivity to the Railways and highways especially in rural areas. When asked about the time frame for amending the Act, Mr Maran said, “We have just started the process.”

Cellular Operators’ Association of India (COAI) welcomed the Wednesday’s announcement. COAI director general TV Ramachandaran said, “This will make the expansion into the rural and semi-urban areas by cellular operators economically viable. We need more cash surplus to fund capital expenditure in rural areas.”

So far, the state-owned Bharat Sanchar Nigam Limited (BSNL) has received the lion’s share of the USO fund as it has covered around 80% of the villages in the country by offering fixed line services. The private operators share in offering rural connectivity has been low in the past.

But if the Telegraph Act is amended then the private sector could play a major role in offering wireless services in rural areas. This is largely because the private players have a stronger presence in wireless services than in fixed services. Also while the urban areas getting saturated in terms of telecom coverage, the rural areas present a largely untapped market. Around Rs 1,814 crore have been made available to the operators for rural telephony of which Rs 1,314.50 crore have been provided during 2004-05. For the year 2005-06, a provision of Rs 1,200 crore has been made available for the USO support.

The minister on Wednesday announced that India has crossed 100 million phones. “The US, Japan and Germany have almost 100% tele-density, while China has a tele-density of 55%. India, with a tele-density of about 9%, is bound to surpass the growth in these countries by a wide margin over the next 4-5 years,” he said.
The minister said the country was likely to have 250 million phones by 2007 with a tele-density of 22%.
“Of the additional 150 million that would be added by 2007, almost 80 million will be done by BSNl and MTNL alone,” he said. On the present access deficit charges (ADC) regime, Mr Maran said the ADC regime will continue for at least another two years. “There is no rush to abolish the ADC. ADC will be reduced with the passing of time and the benefit would be passed on the users,” the minister said.

http://www.financialexpress.com/fearchive_frame.php

Telecom Regulatory Authority of India said on Thursday that the current access deficit charge of 11 per cent must be brought down to lower the tariffs and enable the sector achieve higher mobile growth like China.

The ADC is paid by operators to Bharat Sanchar Nigam Ltd mainly to undertake rural telephony services and currently stands at Rs 5000 crore (Rs 50 billion) a year.

“Unless you bring down ADC from the current level, pushing growth in the mobile segment would be difficult. ADC must come down to introduce lower tariffs and unless tariffs go down further, the kind of growth happened in China will not happen in India”, TRAI chairman Pradip Baijal told newspersons in New Delhi.

“Last year, there were 13 million mobiles… Today there are 47 million. Obviously there is space for reducing ADC,” Baijal said, adding that with such volumes, margins are with the operators therefore the government and operators must work towards bringing down tariffs.

He, however, declined to quantify the reduction and said prejudging the cuts was not possible.

Asked whether the cut will be across the network or certain segments like national long distance, local or international, he said even today ADC is differential on different calls. Therefore the reduction will be differential on different calls, Baijal said.

The TRAI chairman also said that not just ADC, even Universal Service Obligation or USO and revenue share paid by operators to the government must also come down…

1. WDR Expert Forum 2004

• September’s WDR Expert Forum at Mount Lavinia was a success
• Next expert forum in Sri Lanka: Sept. 30 , Oct 1 and 2 [half day], 2005
• Sector and Regulatory Performance Indicators: may be WDR theme for
  2005/6; proposed workshop for this in early 2005 ? Pondicherry.

2. Funding

• We don’t have institutional funding, only project-based.
• This will be a challenge, but I’m (Rohan) confident we’ll pull it off. We spent under budget for the forum.

3. Projects

• IDRC wants us to study ‘diversity of participation in networks.’ Currently, demand side info/knowledge is lacking.
• Supply side: Nepal, India, Indonesia, Bangladesh

i. Assessment of Asia’s first least-cost subsidy auction in Eastern Nepal, and comparison with the Sri Lanka least-cost subsidy auction design. Team: Rohan Samarajiva, Harsha de Silva (B.R. Pandey)

ii. Assessment of the design and implementation of India’s universal service levies, fund and associated policy and regulatory instruments including the Access Deficit Charge (ADC). Team: Harsha de Silva,Payal Malik

iii. Evaluation of the replicability of the WiFi based access innovations in Indonesia, looking at both the scalability of the WiFi based expansion of access at the margins and the impact of the availability and pricing of broadband capacity to link to the Internet backbone. Team: Sabina Fernando, Onno Purbo

iv. Study of the conditions for replicating the Grameen Telecom of Bangladesh, approach of extending access to telephone services through microfinance mechanisms. Team: Malathy Knight-John, Abu Saeed Khan, Ayesha Zainudeen