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Disregarding the pressure from the Ministry of Communications, which had specifically asked the Telecom Regulatory Authority of India (TRAI) not to revise the access deficit charges (ADC) without first consulting it, TRAI has gone ahead and mooted a three-stage process to do away with the ADC regime by 2008-09.

The first stage would be to reduce the ADC collected to less than Rs 56 billion by 2006-07. In the following year, the attempt would be to reduce it further to Rs 20.07 billion, and thereafter, dissolve it completely.

TRAI has also informed the Department of Telecommunications (DoT) that it is in favour of recovering ADC as a share of operators' revenues instead of it being charged on a per-minute basis in the first stage (2006-07) itself.

In its letter to DoT, the regulator has calculated that the aggregate gross revenue (AGR) of the telecom sector will stand at about Rs 1,090 billion in 2007, from Rs 810 billion in February 2005, and therefore, the first stage of revision will see the ADC fall to less than 5.1 per cent of the sector's AGR from 6.9 per cent under the existing regime. The second revision in 2007-08 would make the ADC less than 4.1 per cent of the AGR, which is estimated to be roughly Rs 1,370 billion.

In fact, had DoT not earlier pre-empted TRAI from announcing the new estimates for ADC –­ which was up for its annual review in September –­ TRAI would have possibly reduced the total ADC amount by half and recommended a change in the way it was being calculated as well.

Currently, Rs 56 billion is raised as ADC, by collecting Re 0.30 per minute as levy on every local and STD call on a private network, and Rs 2.50 on outgoing and Rs 3.25 on incoming ISD calls. Of the total pool, over 90 per cent is being collected from private operators to fund BSNL's rural telephony operations.

However, the communications minister, Dayanidhi Maran, stepped in and clarified that "ADC is a subsidy for BSNL's past operations in rural areas. It is not for its future operations as there is the Universal Service Obligation (USO) Fund for that." He further added: "If rural telephony gets affected due to a reduction in ADC, the ministry will have to intervene."

Maran is, of course, supporting BSNL because in the last ADC revision, the state-owned company claimed that it had suffered losses of Rs 12.5 billion annually, which had affected its rural operations.

Quite clearly, there is a basic difference of opinion between TRAI and DoT. While the ministry feels that ADC ought not to be tampered with as it would impact BSNL's rollout of telephony in the rural areas, TRAI believes that the ADC regime should at best be a temporary situation.

To this end, it has cited international experience which shows that ADC had been withdrawn in most countries within a few years of its introduction as it was found to be inefficient and anti-competitive.

Further, TRAI officials feel that once the ADC regime ends, the USO Fund should be used to sustain BSNL's rural operations. The logic is that since it is the subscribers who fund both ADC and the USO Fund, why expect them to pay twice?

The regulator further justifies a revision in ADC on the grounds that it is not fair to make competing service providers wait till BSNL undertakes its rebalancing exercise and subsidise the PSU for its fixed line operations till then. This, TRAI contends, would only inhibit growth, competition and a level playing field in the sector.

Meanwhile, DoT, unwilling to back off, is examining TRAI's response on the issue. Since ADC as a policy was conceived by DoT, it is taking a strong position on it and is likely to adopt a "suitable course of action" soon.

DoT's view is that ADC is a policy issue and as such does not involve the regulator. Its rationale is that offering a subsidy to rural subscribers is a policy decision made by the government. Therefore, TRAI cannot unilaterally decide whether the subsidy can be reduced or removed.

On the issue of DoT's directives to TRAI undermining the latter's authority and consequently affecting investor confidence, DoT officials point out that it is more important to bear in mind the larger interest of consumers rather than the role and function of a single body. TRAI, however, claims that under the law it is allowed to frame regulations.

With both parties unrelenting on their stands, the Prime Minister's Office has had to intervene and has called for a truce. But clearly, the last word on ADChas not yet been said.