Rediff.com Dec 9, 2004
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…
I thought India had amongst the world’s lowest mobile tariffs, so how would lowering tariffs further make any significant difference in mobile growth rates (which are already quite impressive)?
Is there something else going? Will members from the LIRNEasia team working on ADC in India like to shed some light on the regulator’s comments?
The biggest problem with ADCs appears to be the perception that they allow the incumbent to use money from the competitors to undercut the competitors.
There is no one-to-one relation between reductions (or increases) in what are essentially “wholesale” payments and reductions (or increases) in retail tariffs. Most likely the savings from reduced transfers from the competitors to BSNL will be used to stanch the red ink, or go into marketing/investment and not be reflected in retail prices.
Indian mobile tariffs are indeed the lowest in the world, according to the ITU’s 2004 indicators report (though now Nepal says they’ve come down below India!):
Connection Peak/mt Off-peak/mtSMS
India 3.93 0.05 0.05 0.02
Cambodia 0.59 0.08 0.04 0.03
Philippines 3.14 0.15 0.07 0.02
Madagascar 4.03 0.19 0.19 0.10
The truly interesting question is whether these prices can be sustained in the long or medium term.
The TRAI went ahead and actually slashed th ADC on January 6. This move was wlecomed by the private operators especially those who are in the NLD and ILD business. Moreover, this cut has been passed on to the consumer in the form of reduced retail NLD and ILD tariffs. So ADC and the way it is implemented i.e. by building it into the interconnection charges to be paid directly to the incumbent state-owned enterprise (BSNL) in order to compensate it for providing below-cost service in rural areas, is distortonary.
ADC is essentially an excise subsidy to the incumbent and an excise tax on the competitors. Like any excise subsidy (tax) ADC has created some perverse outcomes like the development of a huge grey market in the International Long Distance service. It may specially hurt those marginal consumers who do not provide large revenues to operators as the new entrants will duplicate networks only in areas that are profitable, bypassing the incumbents network to avoid ADC.
Thus, it is essential that the regulator removes this distortion at the earliest. The compensation for providing low cost services in the rural areas can be met through a lump-sum transfer from the Universal Service Fund.
I think that reducing ADC is a good move by TRAI. yes of course we all are interested in the development of rural telephony but this should be done on the cost of urban subscribers. and moreover what is the gurantee that the ADC which is given to bsnl is used for the purpose of rural telephony and not for subsidising its cellular service? so rather the TRAI Should make a properplan over this delicate issue.
Now TRAI is proposing to levy ADC only on incoming international calls. Most Indian operators are happy with this except those carriers like ATT and BT that rely primarily on revenues from international calls. ATT rightly argues that levying ADC on international calls will create arbitrage opportunities and drive more of incoming international calls into the grey market. The article also mentions that ADC will be discontinued by 2008. I guess BSNL will want to extract its pound of flesh before this program is terminated.
It looks like ATT & company lobbied effectively to remove any ADC charges on international calls. ADC cut by about 37% and TRAI expects the savings by competitive providers to be passed on to consumers.
Telecom tariffs to fall; TRAI lowers ADC burden
New Delhi, March 21 (PTI): Telecom tariffs are set to fall significantly across the board as sector regulator TRAI today announced a cut of more than 37 per cent in the levy paid by private players to BSNL for providing services in rural areas.
“The total amount of levy (Access Deficit Charge) for the financial year 2007-08 is reduced to approximately Rs 2,000 crore from existing level of Rs 3,200 crore,” Telecom Regulatory Authority of India said in a statement here.
In particular, international long distance (ISD) calls are likely to become cheaper as the levy on such calls has been completely removed from 80 paise being charged now.
All private operators pay ADC to state-owned BSNL for carrying out social obligations like providing services in unremunerative and rural areas.
“The Authority expects that the reduction is ADC amount resulting from today’s order would be fully passed on to the consumers by the service providers,” TRAI said.
The new regime would come into effect from April 1 this year.
Finally the ADC is completely removed as TRAI announced today that ADC will not be payable from April 1.
I think it’s a welcome move and even though there are less chances of a cut in the general minimum call rate of Rs 1 which is generally given with special tariffs/vouchers, we can hope the 2.40 STD call rates to come down to 2.
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