TELECOM POLICY

An illogical step

K. VENUGOPAL

WAS the Telecom Regulatory Authority of India (TRAI) right in raising the rental for the telephone? The question can be answered in two contexts. One, based on the cost of providing the service, and two, based on the need to provide universal access to the telephone. On both counts, the TRAI may have judged wrongly.

If one has to study the cost of providing telephone services in this country, one has only the books of the Department of Telecommunications (DoT) to go by. And if one goes by them, one finds that the Department and its new corporate avatar, Mahanagar Telephone Nigam Ltd, more than cover their costs. They indeed make super normal profits by any standards, 64 paise on every customer rupee.

There are chiefly two sets of costs for the Department. One comprises the costs of the various equipment that go towards creating the network, such as the cable that connects your telephone to your nearest telephone exchange, cables that link up two or more of the exchanges in the town or city, those that connect one town with another and those that connect one country with another. In 1996-97, 12 paise out of the customer rupee went towards depreciation for these assets. The second set of costs, which amounted to 18 paise in the rupee that year, relates to expenses on staff. Other costs are very small.

SAVITA KIRLOSKAR / REUTERS
Foreign exchange traders at work. Of the 19.8 million phone lines in India, a large chunk are installed in offices and other commercial premises.

The initial deposit that one pays at the time of registering for a telephone connection and the bimonthly rental paid in advance once the telephone is energised are akin to the cover charges at a restaurant. You pay for the privilege of being connected, not for how much you use the facility.

When it set out to restructure the tariff for various telephone services, the TRAI said that it would align them to the costs of providing them. Long-distance rates were way above the costs of providing them, it reckoned. But when it came to fixing bimonthly rentals, it could not clearly determine what proportion of the total costs was to be assigned to rentals. So it decided to increase rentals (fixed in 1993) in line with general inflation and the rise in income levels among the population.

This is where the TRAI's logic does not find support from its own assertions elsewhere. While inflation has driven up prices elsewhere, telecom equipment prices have actually fallen over the past five years. The TRAI, quoting the DoT, finds that the cost of equipment per line has dropped from Rs.46,800 in 1992-93 to Rs.32,800 in 1996-97. Staff costs as a proportion of total revenue have also not risen. So the inflation argument does flounder.

If the TRAI were to defend the rental increase on the ground that income levels of customers have risen, it must apply with equal force to calling charges. Yet for those the TRAI has mandated steep cuts.

The second and equally important reason why rentals should not be raised is in the context of the need to get more people in the country connected. With a teledensity of 1.72 per cent, India is way behind Japan (49 per cent) and even Pakistan (1.8 per cent).

The total number of telephone lines in the country (as provided in the Rajya Sabha in February) is just over 19.8 million. Given that a large chunk of these work in offices and other commercial premises, the number of homes with a telephone must be small. Contrast this with the fact that over 20 million homes in the country, enticed by good entertainment and low entry costs, have plugged into cable television, all in a matter of six or seven years.

High rentals and initial deposits for telphones are entry barriers that would render difficult the task of increasing the teledensity. The TRAI recognises this only too well; indeed, it claims it turned down suggestions to raise them steeply.

The problem is that even at existing levels, the barrier would seem too high for most people in the country. Consider this: ten years ago, there was one person on the waiting list for every three working telephone lines. Today there is only one person on the waiting list for every six who have telephones. If that is a measure of the DoT's success in quickly raising capacity, it also is a measure of perceived affordability. Even if all the people on the waiting list are given telephone connections immediately, the teledensity would rise not much above Pakistan's level. It would seem futile even to hold back increases in rentals; only a reduction in their levels can get more people to own a telephone.