Reliance Communications? problems with policies, or to put it better, its using regulatory gaps to its advantage has often engendered regulatory changes in telecom. Recall that the CDMA mobile technology and the subsequent universal access service licence (UASL) regime would not have come about had Reliance (when it was an undivided company) not exploited regulatory gaps existing then in fixed wireless phones. Once the then undivided Reliance had a sufficient subscriber base on the back of low tariffs, the government moved from a regime of separate fixed line licence and cellular licence to a UASL regime: pay the licence fee and provide whichever services you want?fixed, mobile or broadband. To create a level playing field for the other operators whose licences predated Reliance?s, the government levied a penalty on the latter. Thus, a new regime was born.
All this happened between end-2002 and 2003. Come 2006, by when the older Reliance Infocomm had become Reliance Communications? the group had de-merged and the telecom business had come to Anil Ambani?the company thought of moving from the CDMA platform to the more popular GSM, where till then it had a minuscule presence in certain C category circles. Though the UASL was technology agnostic on the issue, there was no precedent till then for allocating spectrum to a CDMA player if it wanted to foray into GSM as well. RComm once again challenged policymakers. A Raja, then as now, the IT and communications minister, actually delivered: in October 2007 his ministry came out with a policy clarifying that CDMA players could enter GSM in a big way. Thus, RComm today is a full-fledged GSM player.
In between these two episodes, RComm in its Infocomm days had another brush with regulators. What was then known as access deficit charge (ADC)?mobile operators had to pay the wireline segment of BSNL a certain portion of their revenues from every STD and ISD call?was justified as private industry payment to support BSNL?s social service obligations in rural areas, where private operators didn?t make large bets due to lack of commercially viable demand. Infocomm, regulators said, was diverting incoming ISD calls as local calls to escape ADC payments. The ADC regime ended last year. But the case with regard to alleged illegal routing of calls is still alive.
RComm?s latest regulatory trouble may be the biggest: as reported the company has been found to be over-reporting revenues to stock exchanges but underreporting revenues to the government, apparently so as to lower licence and spectrum fee burdens. Research reports by certain equities firm taking note of the alleged irregularities by RComm started appearing last year. This made the government order a special audit of the company?s books. Subsequently, the government ordered similar audits of the books of other mobile firms, Bharti Airtel, Vodafone-Essar, Idea Cellular and Tata Teleservices Ltd. The audit on the other companies is not over as yet.
But what is the larger issue? Yet again, it is one of RComm?s apparently over-creative business practices highlighting a regulatory gap. Telecom still has too many rules, leaving enough scope for companies to find ways of bypassing them.
Recall again the 2003 CDMA controversy: when Reliance Infocomm started with its CDMA service, it was not supposed to be a fully-mobile service but a partly-mobile one. Ergo, it was not supposed to have a roaming service. The company offered the service by way of call forwarding mechanism, which was always allowed on fixed line phones but seldom used!
Part of the cleaning up of such ridiculous regulations was done by Arun Shourie during his stint as the communications minister in the NDA regime. Sadly, one part got left out?moving from UASL to a universal licence, that is, a single licence allowing a player to provide all kinds of services from telecom to broadcasting. Had that been in place, with a single licensing rate, the current controversy could have been avoided. For instance, today companies have to get separate licences at separate entry fee for UASL, long distance and Internet services. The revenue-share/licence fees details are also different. While it varies between 6-10% depending on the circles for UASL, for long distance it is at flat 6%.
All this leaves enough scope for integrated firms providing all the services to book growth under heads that have lower fee and therefore save on the licence fee payment.
Not only this, there?s no principle governing transfer pricing. For instance, if firm A has UASL as well as long distance licence while firm B has only UASL, the latter would need the long distance network of the former to carry its calls. This would require B to pay a carriage charge to A. While there?s a ceiling rate of 60 paise per minute for this, a firm can happily provide the services to its own network for much less than it does to a rival network.
If history is any guide, the latest RComm imbroglio will ultimately lead the government to close a regulatory gap?by changing over to universal licences.