Judgment:
The three Appeals - 6 of 2006, 5 of 2007 and 5 of 2008 were filed by the Appellant – Bharat Sanchar Nigam Limited (hereinafter referred to as BSNL) - challenging the Telecommunication Interconnection Usage Charges Regulations, reducing Access Deficit Charge (hereinafter referred to as ADC).
2. In Appeal No. 6 of 2006, the Appellant has impugned the Telecommunication Interconnection Usage Charge (Sixth Amendment) Regulation (1 of 2006) dated 23.2.2006 (hereinafter referred to as IUC Regulation 2006). In Appeal No. 5 of 2007, the Appellant has impugned the Telecommunication Interconnection Usage Charge (Eighth Amendment) Regulation (2 of 2007) dated 21.3.2007 (hereinafter referred to as IUC Regulation 2007). In Appeal No. 5 of 2008, the Appellant has impugned the Telecommunication Interconnection Usage Charge (Ninth Amendment) Regulation (2 of 2008) dated 27.3.2008 (hereinafter referred to as IUC Regulation 2008).
3. The contention of the Appellant is that the concept and the norms of ADC having been laid down in the year 2003 by the Respondent – Telecom Regulatory Authority of India (hereinafter referred to as the Authority), the Authority cannot, through the impugned Regulations, arbitrarily reduce the ADC and also determine, a priori, the ADC that the Appellant would be entitled to.
4. The background for these three Appeals is broadly as follows. Till 1994, telephone services were a monopoly of the Department of Telecommunications (DOT) or Mahanagar Telephone Nigam Limited (MTNL), a Public Sector Undertaking functioning in the cities of Delhi and Mumbai. To begin with, two private service providers each in Delhi, Mumbai, Kolkata and Chennai were awarded the Cellular Mobile services in November 1994, followed by two licensees in each of the 18 Telecom circles. Pursuant to the New Telecom policy, 1999, the DOT and MTNL were inducted as third operators in each of the Circles. The Telecom services of the DOT were transferred to a new corporate entity, the BSNL. In January 2001, Guidelines were issued for the fourth operator in all the Circles.
5. In the year 2003, the Authority issued The Telecommunications Interconnection Usage Charges Regulations, 2003 (4 of 2003) dated 29.10.2003 which superseded the earlier Regulation dated 24.1.2003. In this Regulation, the Authority laid down that the Interconnection Usage Charges specified in the Schedules given thereto, would consist of Termination Charges, Carriage Charges and Access Deficit Charges. The Explanatory Memorandum to the Regulation points out that prior to the opening of the Telecom sector, the loss due to access deficit for Basic Service Operators was being taken care of by a cross subsidy from profits arising from the domestic and international long distance tariffs. At that time, the telecommunication services in the country were being provided by the Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL), the Public Sector Undertakings (PSUs), who were Basic Service Operators and whose main activity was Fixed Wireline Service. As part of their social obligations, these PSUs were asked to maintain their call rates as well as monthly rentals at a modest level to be within the reach of the customers. This was more so in case of BSNL which was operating in the entire country barring the two cities of Delhi and Mumbai. The deficit between the cost of providing local and rural telephony services and the revenue therefrom, known as access deficit was being subsidized by the higher tariffs for the domestic and international long distance calls.
6. The concept of ADC was introduced in the year 2003 vide The Telecommunication Interconnection Usage Charges (IUC) Regulation, 2003 dated 24.1.2003. It is a charge payable to the Basic Service Operators which they must get in order to keep the rental as well as the local call affordable. The difference between the average monthly rental and the cost-based monthly rental was to be obtained through ADC. The ADC was imposed on all Long Distance Calls which involved fixed line subscriber at either or both ends. Accordingly, the Regulation dated 24.1.2003 provided for ADC to the tune of Rs. 13518 crore to the Basic Service Operators of which Rs. 12381 crore was the total amount of ADC funded to BSNL. Of this sum of Rs.12381 crore, a sum of Rs. 10084 crore was self-funded by BSNL, from calls generated by it. The net amount of ADC funded to BSNL by other Service Providers was a sum of Rs. 2298 crore.
7. The Regulation of 24.1.2003 was superseded by the Telecommunication Intercommunication Usage Charges Regulation 2003 (4 of 2003) (the Regulation) dated 29.10.2003. This Regulation was issued in the context of the fact that the ADC, as per the earlier Regulation, constituted about 30% of the total revenue of the telecom sector, which was far higher than the corresponding share in other countries, which ranged from 0.2 to 6%. The high level of ADC also resulted in higher tariffs which were felt to be non-sustainable in India especially given the objective of rapid growth in teledensity. Accordingly, the Regulation of October 2003 provided for a distribution of the ADC load on all access services. The ADC amount was also reduced and kept at 10-12% of the sectoral revenue, as against 30% in the earlier regime. It is noteworthy that as far back as October, 2003 a decision was taken not to funding the entire ADC. Accordingly, the total amount of ADC provided was fixed at Rs. 5340 crore of which the amount of ADC funded to BSNL amounted to Rs. 4792 crore, including self funding to tune of Rs. 2264 crore and a sum of Rs. 2528 crore being the net amount of ADC funded to BSNL by others.
8. The Regulation of 29.10.2003 was followed by various amendments. The Indian Telecom sector saw a rapid growth in the Mobile Cellular segment. The Fourth Amendment dated 6.1.2005 was issued in the context of an unanticipated and significant increase in the mobile subscriber base as well as the minutes of use per subscriber per month, both leading to a much higher number of minutes of usage funding the overall ADC amount. At the same time, the operations of BSNL continued to be predominantly in the fixed wireline segment. There were also certain key objectives such as (a) reducing domestic call charges for the general benefit of the consumers; (b) addressing the problem of grey international calls; (c) ensuring that benefit is not passed on to foreign carriers and consumers at the cost of domestic consumers and operators. Keeping in view the various factors, the Authority decided that all the Basic Service Operators, other than BSNL, would get ADC funding only from their outgoing calls and the ADC generated by the incoming calls, that was earlier provided to the non BSNL operators, would now be provided to BSNL. The total amount of ADC was to be retained. The ADC amount was to be reviewed annually and was followed by the fourth and fifth amendments to the Regulation dated 29.10.2003.
9. The Telecommunication Interconnection Usage Charge (Sixth Amendment) (Regulation) (1 of 2006) dated 23.2.2006 was specifically issued in the concept of the fact that ADC was a depleting regime and that ADC regime would be reduced to zero in the next two years. The objective was also to ensure that ADC collection would be simple and easy to administer. The key objectives of reducing the domestic call charges and addressing the problem of grey international calls were kept in mind. Consequently, the Authority decided to eliminate the ADC on National Long Distance (NLD) calls, retain the ADC on International Long Distance (ILD) calls and that all operators will pay 1.5% of their AGR, after deducting the revenue from rural subscribers and from their fixed line operations, to BSNL as ADC. Likewise, all National Long Distance Operators (NLDOs) and International Long Distance Operators (ILDOs) were to pay 1.5% of their AGR to BSNL as ADC. The total estimated funding of ADC for the year 2006-07 was estimated at Rs. 3335 crore of which Rs. 3200 crore was the estimated ADC funding for BSNL.
10. The Telecommunication Interconnection Usage Charges (Eighth Amendment) Regulation (2 of 2007) dated 21.3.2007 was issued to fix the ADC for the year 2007-08 and also the mechanism for collection/funding of the same. This was a continuing exercise in the framework of ADC being a depleting regime. The Authority decided that in place of 1.5% of AGR being paid to BSNL as ADC, it would only be 0.75%; that there would be no ADC on outgoing international calls and that there would be a 38% reduction in per minute ADC on incoming international calls. For the year 2007-08, the total collections of ADC were estimated at Rs. 2050 crore, of which Rs. 2000 crore would accrue to BSNL.
11. The Telecommunication Interconnection Usage Charges (Ninth Amendment) Regulation (2 of 2008) dated 27.3.2008 was issued to fix the ADC framework for the year 2008-09. In this Regulation, the Authority decided that ADC as a percentage of AGR shall be phased out on 1.4.2008; that ADC on international incoming calls shall continue to be charged @ Re. 0.50 per minute till 30.9.2008; that it would recommend to the Government the provision of subsidy for BSNL’s rural wireline operations from the Universal Service Obligation fund (USO) to the tune of Rs. 2000 crore annually for a period of 3 years.
12. The case of the Appellant in all the three appeals is that the impugned regulations are contrary to the norms earlier defined by the Authority in the Regulation of January 2004. The Authority had earlier laid down the norms for computation of IUC and ADC but in amending the Regulations subsequently, it had ignored these very norms. According to the Appellant, ADC was brought in as the necessary tool to achieve a level playing field and was based on a concept that the provision of service in the rural areas is below cost and would require compensation to BSNL through ADC. Its case is that prior to the entry of the private sector operators, when, barring Delhi and Mumbai, the entire operations in the country were being run Departmentally, the Department of Telecommunication was fixing the tariffs balancing the low cost tariff in the rural areas with the higher cost of NLD and ILD calls. Consequent upon the National Telecommunication Policy, 1999 and the entry of the private sector operators, it was noticed that affordability was one of the factors for achieving teledensity targets and Government had to make telecommunication service affordable. It was for this reason that the basic service and particularly in rural areas remained below cost, the deficit being recouped by long distance call charges. The Appellant’s contention is that when telecommunication was opened to private sector, the revenue of the long distance calls substantially went to the private operators while the basic service remained largely with BSNL in terms of continuing maintenance of the existing lines as well as expanding the new lines. The case of the Appellant is that ADC is a matter of legal right. Its case is that ADC is statutory since it is part of IUC Regulations which are issued as statutory Regulations.
13. The case of the Appellant is that while the obligations of social service and particularly rural area service continue on the one hand, the Authority has resorted to arbitrarily reduce the ADC amount every year. The Appellant’s contention is that till such time the BSNL is made to provide the landline services, rural telephony or any other service below costs, the requisite amount should be continued to be paid to BSNL in the form of ADC and the Authority does not have any right to reduce the ADC or to eliminate the same, disregarding the rationale for creating the ADC.
14. The Appellant’s further contention is that the Consultation Paper issued in 2002, forming the basis for the IUC Regulations in the year 2003, worked out the cost of providing basic lines and the return thereon and the deficit per line was determined by TRAI. According to the Appellant, it is not open to TRAI to reduce the ADC and ultimately eliminate it when the basic lines continue to be a losing proposition. While the IUC Regulation regime starting from 2003 is the result of cost based determination, none of the IUC Regulations laid down a specific amount but only a principle which is that every service provider must get their revenues on a cost plus basis and in doing so, every service provider is entitled to a level playing field. The Appellant’s case is that the actual amount of ADC cannot be laid down unless the amount is computed, and while the underlying principles as well as the grounds for ADC continue to exist, the amount has never been properly computed.
15. The case of the Appellant is refuted by the Respondents who point out that the Appellant has received far higher amounts than warranted. Their case is that ADC has actually resulted in higher tariffs, impeding the growth of the telecom sector. According to them, the Universal Service Obligation Fund already provides compensation to the BSNL and that the action taken by the Authority in issuing the three impugned Regulations is correct.
16. The issues that arise for determination in this case are :
a. Whether the Appellant has a legal right to ADC?
b. Whether the Authority is right in determining that ADC would be a depleting regime? Whether it was right in prescribing that the ADC regime would be progressively reduced and eliminated in 2008-09?
Whether the computation of ADC from year to year was properly made?
17. The pleadings having been completed, we have heard all the counsels at length. While the Appellant was represented by Mr. Maninder Singh, the 1st Respondent was represented by Mr. C.S. Vaidyanathan, the COAI by Dr. A.M. Singhvi and the AUSPI by Mr. Ramji Srinivasan.
18. The learned counsel for Appellant stated that when private operators were given license, a certain obligations were imposed on them to provide rural telephony but these operators failed to discharge their obligations.
19. The Basic Service operations were being maintained only by BSNL which is also continuously expanding and augmenting the same. Under these circumstances, the ADC is nothing but essential and mandatory component of level playing field which is enshrined in the new Telecom Policy, 1999. According to him, it is not permissible in law for anyone, including the Authority, to declare that BSNL will be compensated for an amount less than what is due to it. The counsel pointed out that it is an admitted position that BSNL covers complete totality of the rural telephony set up in the country.
20. The counsel also pointed out that the assumption of the Authority that ADC will be replaced by Universal Service Obligation Fund is also not correct. Making an a priori declaration that ADC will be gradually reduced and eliminated is, according to the counsel, ‘malice in law’.
21. The counsel for Appellant further argued that the grievances of the Appellant are two-fold:
(a) It is not open to TRAI to declare in advance that it will reduce the total quantum of ADC by a pre-determined figure and that it would be eliminated;
(b) That there are gross errors in computations of the requisite amounts of deficit.
22. The learned counsel for Appellant stated that it is an accepted principle the world over that each telecom operator under a Regulatory regime is able to generate and secure to itself revenue on cost plus basis. Accordingly, it is the responsibility of the Authority to create and maintain a level playing field for the telecom operators. Pointing out that the DOT was meeting the ADC from Long Distance and International Long Distance Traffic, he stated that after the formation of the BSNL, the private operators were paying termination charges to BSNL while BSNL did not have to do the same. He pointed out that the Authority had initiated the process of bringing in place the IUC mechanism on cost based analysis and published a Consultation Paper on 29.3.2002. According to him, the IUC Regulation of January 2003 is a result of cost based determination on the basis of a level playing field. Stating that the Authority had come to the conclusion that affordability is a pre-requisite to increase in teledensity which is the national objective, the Authority concluded that it is imperative that the rentals and other charges for basic services should be brought down from the then prevalent rates.
23. The learned counsel for Appellant referred to the IUC Regulations dated 29.10.2003 and stated that according to the Explanatory Memorandum thereto, the access deficit for fixed lines arises due to the tariffs being specified for social reasons in contrast to the cellular services which enjoy tariff forbearance. He pointed out that the Memorandum also states that the Authority did not favour increase in local call charges for fixed lines services and accordingly calculated the access deficit to be made available to BSNL at Rs.8657 crore. According to the counsel, this itself is an erroneous calculation since, on the one hand, the Authority had taken into consideration a higher monthly rental recovery by BSNL and, on the other hand, the Authority had deducted excess amount as surplus in termination charge. In short, the case of the counsel was that although the calculation of ADC made by the Authority in October, 2003 was itself erroneous, it was certainly based on calculation of the deficit and the revenues, thereby working out the net access deficit to be made good to the BSNL.
24. Adverting to the Regulations dated 23.2.2006(impugned Regulation in Appeal no. 6of 2006), the contention of the counsel for Appellant is that the Authority had admittedly not carried out fresh calculation for calculating the admissibility of ADC to BSNL and other fixed line operators. Instead, the Authority made an a priori decision to eliminated ADC by 2008-09 and accordingly stipulated that the ADC in 2006-07 would be Rs.3335 crore, of which Rs.3200 crore would accrue to BSNL. Referring to the IUC Regulations dated 21.3.2007, (impugned Regulation in Appeal no. 5 of 2007), the learned counsel pointed out that notwithstanding the fact that BSNL has furnished its response to the Consultation Paper and also furnished therewith a copy of the Appeal no. 6 of 2006, the Authority decided to reduce ADC to Rs.1600 crore for the year 2007-08 of which BSNL’s share would be Rs.1280 crore. The case of the counsel is that in this Regulation once again, the Authority had not carried out any exercise to determine the actual quantum of the ADC required and it did not take into consideration any figures. The counsel’s case is that these were ad hoc figures arrived at by the Authority without any basis. Insofar as the Regulation dated 27.3.2008 is concerned (impugned Regulation in Appeal No. 5 of 2008), the case of the learned counsel for Appellant is that BSNL had informed that Authority that it required an amount of Rs. 8774 crore per annum to sustain its basic services in rural areas and that it was not possible to increase the tariffs. The counsel pointed out that in its recommendations dated 27.3.2008 to the DOT on “Support for Rural Wireline Connections installed before 1.4.2002 from Universal Service Obligation Fund”, the Authority had indicated that “in the absence of any support, sustainability of existing wireline operations of the incumbent in rural areas could be hampered. Because of intense competition in the market, BSNL as a commercial entity may not like to maintain these at high costs and net loss without any compensatory financial assistance. …… This legacy fixed wireline network is an important national asset that offers a number of advantages …… and would also ultimately be the key to pushing forward broadband penetration. …. To make this happen, it needs to be ensured that wireline connections are supported and their maintenance is taken care of through an appropriate subsidy.” The case of the counsel is that the Authority had estimated a shortfall of Rs. 214 per month per rural wireline subscriber, requiring a support of about Rs. 2300 crore for rural lines installed before April, 2002, and had recommended an assistance of Rs. 2000 crore per annum for 3 years from the Universal Service Obligation Fund.
25. The learned counsel for Appellant stated that the entire grievance of the Appellant is that TRAI had decided in advance, and without rational basis, that the ADC amount would be progressively reduced and ultimately eliminated by 2008-09, although, the Authority itself accepts and acknowledges that it is extremely essential that the social objectives of the telecom policies of the Government of India are achieved through the Government operators, chiefly BSNL. It is also submitted by the counsel that the Authority had been deciding, a priori, and in a completely impermissible and illegal manner, the amount of ADC and computing the amount of ADC in such manner as to reach the amount so decided by the Authority.
26. The counsel for Appellant pointed out that it is admitted by the Authority right from the beginning that the rates being charged by BSNL for basic services are far lower than the actual costs. It is also the policy prescription by the Authority that in order to increase teledensity, it is also necessary to reduce the charges for basic services. TRAI itself had fixed a ceiling of Rs. 70 p.m. for basic services in the rural areas. And BSNL is unable to increase the monthly rentals beyond Rs. 50 p.m. TRAI itself acknowledges that the revenues to BSNL in the non-rural areas are also lower that the costs incurred. This being the scenario, and BSNL having a right for generation of revenue on cost plus basis, it is essential that the BSNL be compensated adequately in the form of ADC. It is his contention that it is not permissible for TRAI to declare in advance that ADC would be progressively reduced and ultimately eliminated. The learned counsel further argued that the inherent requirement of level playing field to be ensured by TRAI, is also protected under Article 14 and 19 (i) (g) of the Constitution.
27. Turning to the gross errors in computation of ADC by TRAI, the learned counsel for Appellant pointed out that when IUC is admittedly cost based, BSNL was being paid only Re. 0.23 for termination as against the statutorily fixed rate of Re. 0.30, thereby costing BSNL a sum of Rs. 1500 crore annually. The Appellant has questioned the impugned Regulation on the ground that the Authority should have awaited the decision of the Tribunal in Appeal No. 6 of 2006. In doing so, the Authority had issued the impugned Regulation and therefore the impugned Regulation deserves to be quashed on this ground alone.
28. The case of Mr. C.S. Vaidyanathan learned Senior Counsel for the 1st Respondent -- TRAI -- is that ADC was only to compensate the BSNL for historical costs for loss suffered prior to 2002. For all new lines after 1.9.2002, the USO fund was utilized. According to him, the BSNL had submitted in response to the Consultation Paper of 23.9.2002 that it requires to be compensated till the teledensity of 15% is achieved. He referred in this context to the letter dated 5.11.2002 of BSNL addressed to the Authority wherein it had stated that the “NLD/ILD services will have to be continued to be subsidized from the basic services to keep them within a affordable limits of the common man with a view to achieve a reasonable teledensity of 15 and above. The counsel also pointed out that progressively, the fixed lines in rural areas have been going down as compared to the Cellular mobile connections, which are going up considerably.
29. The counsel pointed out that the extent of funding that BSNL had so far received is Rs. 31,870 crore through different sources. This is besides the amount of ADC being retained by BSNL which is of the order of Rs. 14553 crore till 31.12.2007. According to him, what while BSNL’s own funding of ADC has come down, their support from other providers has been of the order of Rs.2500 to 3000 crore. What is recommended by TRAI has to be recouped from USO fund is also similar at Rs. 2000 crore per annum for 3 years.
30. The counsel pointed out that ADC is the result of a policy evolved by DOT and is in the nature of a subsidy for basic service. The Regulator, in order to encourage the reach of teledensity has evolved this policy. Unlike in the case of electricity, where cost subsidisation is not permissible, the Indian Telegraph Act does not have any such provision. He pointed out that the USO fund was brought in by way of an amendment to the Indian Telegraph Act in the year 2003 and even before that the TRAI Act one of the functions of the Telecom Regulatory Authority of India is to ensure effective compliance of Universal Service Obligation. The counsel further pointed out that according to Section 2 of the TRAI Act, it is open to the Authority to notify different rates for different persons or class of persons for different telecommunication services. The counsel further referred to Section 3(1) and (1A) of the Indian Telegraph Act, 1995, introduced by Act 8 of 2004 (with retrospective effect from 1.4.2002) which speaks of the obligation to provide access to telecommunication services to people in the rural and remote areas at affordable and reasonable prices. His argument is that the very purpose of establishing the USO fund, by a statutory amendment to the Indian Telegraph Act was to provide support for basic services. He also pointed out that this is also evident by the Indian Telegraph Rules, 2004 which envisage that the USO fund shall support two streams – stream-I relating to provision of Village Public Telephones, Rural Community Phones, Public Telecom Information Centres and stream-II providing for household telephones in rural and remote areas. The counsel referred to the case of Reliance Infocomm vs. Bharat Sanchar Nigam Limited and Ors. [2008(6) SCALE 503] wherein the Supreme Court held that ADC is a subsidy given to BSNL to incur capital expenditure for rolling out telecom network in rural areas to approximately 10 lakh lines and that ADC regime right from January, 2003 is a matter of policy framework initiated by TRAI to promote lower domestic prices and to give rise to strong subscriber growth. He also referred to the case of Tata Teleservices Vs. Bharat Sanchar Nigam Limited and Ors. [2008(6) SCALE 523] wherein the Supreme Court held that ADC does not arise out of any legal right. The case of the counsel is that ADC is not a legal right but is to be funded from the USO fund which was intended for that purpose.
31. The learned counsel also argued that ADC is not part of Interconnection Usage Charges. According to him, even if a call goes from an Airtel subscriber to Vodafone subscriber, BSNL would get ADC, although BSNL has nothing to do with the call since there is no interconnection with any BSNL network. Likewise, subsequent formulation of ADC was in terms of a specific percentage of the AGR, which has nothing to do with interconnection.
32. The counsel for Respondent also pointed out that TRAI had been repeatedly stating that the ADC will be a depleting regime. Referring to the quantum of the ADC, the counsel pointed out that while the Regulation dated 24.1.2003 provided for ADC to the tune of Rs. 13,518 crore the same was reduced to Rs. 5340 crore in the Regulation dated 29.10.2003. This Regulation of 29.10.2003 was not challenged. He pointed out that the original amount of Rs. 13518 crore was taking into account not only the rural but also urban lines. He pointed out that urban area tariff is under forbearance and that urban consumers can afford higher rentals and call charges. His argument is that BSNL cannot, on the one hand, keep reducing tariff in the urban areas and on the other hand claim this difference between its cost/rentals and call charges as ADC at the cost of other operators and consumers.
33. The counsel also pointed out that as per the recommendations of TRAI dated 27.3.2008 on ‘Support for Rural Wireline Connections installed before 1.4.2002 from USOF, on phasing out of ADC’, sustainability of the fixed wirelines in rural areas is important, and that the legacy fixed wireline network is an important national asset that offers a number of advantages such as broadband and the resultant services like IPTV, tele-medicine, e-learning etc.
34. The counsel for Respondent stated that in the year 2002 itself, BSNL wanted ADC to last only till the teledensity (number of telephones per hundred of population) of 15 is achieved in the country. The counsel stated that this figure was achieved long back and today, the teledensity i more than 35. The case of the Counsel is that even BSNL did not contemplate the ADC mechanism to continue in perpetuity and that the three Appeals against the Regulations of 2006, 2007 and 2008 are contrary to the stand taken by the Appellant itself in the year 2002. The counsel also pointed out that initially BSNL wanted to be subsidized only 487 rural Short Distance Charging Areas (SDCAs). But what is being done is that BSNL has been given ADC for about 1600 SDCAs.
35. Counsel for Respondent argued that there is another way of looking at the issue. BSNL is asking for a sum of Rs. 8774 crore as the ADC requirement every year. According to the counsel, there are only about 10.5 million fixed wire-lines serviced by BSNL in the rural and remote areas out of a total of around 413.5 million lines existing in India as on 28.2.2009. When the total revenue from all the 400 million lines is of the order of about Rs. 80,000 crore annually, it is indeed fanciful for BSNL to make a claim of around Rs. 8774 Crore per annum for sustaining the operation of its basic services in rural area or about Rs. 13000 crore for 30 million fixed lines including the services in the semi-urban, urban and metro areas. His case is that the tariff in urban areas and metro cities being under forbearance, nothing prevented the BSNL from raising its charges in these areas.
36. The learned Counsel for the Cellular Operators Association of India (COAI), Dr. A. M. Singhvi adopted the argument of the counsel for the 1st Respondent –TRAI. He stated that the very concept and nature of ADC is that it is a depleting regime, and was intended to be phased out. It is based on the premise that the private operators would not go to rural areas; that the rural areas require telephony; and that telephony can only be provided by BSNL. But, over the years, this premise has been found to be not true. Today, 75% of the rural wireless lines are with private operators and 66% of all lines (wireline plus wireless) are with the private players. The counsel also stated that ADC is not a permanent subsidy. He pointed out that BSNL has an accumulate profit of Rs. 75,000 crore and as such removal of ADC will not have any adverse impact on BSNL. For these reasons, the counsel stated that there is no question of violation of the principle of level playing field.
37. The learned senior counsel for 2nd Respondent – Association of Unified Telecom Services Providers of India (AUSPI), Mr. Ramji Srinivasan, pointed out that even as per the Regulation dated 29.10.2003, ADC was a depleting regime and it was envisaged to be merged finally with USO regime. His contention was that the Appellant was not right in asking for continued assistance and that too of an exorbitant amount. The counsel stated that in the above Regulation, the Authority had noted that while the amount of ADC does not cover the full amount of deficit, both BSNL and MTNL have benefited on account of being allowed entry into the Cellular sector without any entry fee.
38. The case of the counsel is that TRAI had issued the Regulation dated 1.3.2006 as part of a framework to promote lower domestic prices and give a greater impetus to subscriber growth. The exceptional growth in the mobile subscriber base has resulted in a substantial change from the earlier situation where the landlines were a predominant service. The counsel pointed out that TRAI had even in the earlier Regulations proposed to address greater application of the principle of Forward Looking Long Run Incremental Cost (FLLRIC) for ADC computation in the case of the newer and less expensive technologies. Referring to the allegation that the costs have not been calculated properly, the counsel pointed out that the Authority had already indicated that the ADC would be a depleting regime. The counsel further stated that in an answer to the Lok Sabha on 17.3.2006, the Government stated that due to technical constraints in the existing network of BSNL, it is not possible to measure intra-network minutes that are required for computing the amount of ADC retained by it and therefore the exact amount of ADC collected during the last 3 years (2003-2006) is not maintained. The Government also stated that as no traffic observation were carried out by BSNL in the period May 2003 to January 2004, no figures can be estimated and that no separate accounts of its utilization are maintained. The case of the counsel is that all the claims of BSNL for ADC are admittedly not backed up by any data, and so the question of TRAI making any calculations does not arise. The counsel stated that even in January 2005, TRAI had recognised that there is a considerable overlap between the objectives of the USO fund and the ADC regime and the ADC regime will need to be phased out over time and ultimately integrated with USO fund.
39. We have carefully considered the various issues raised and the contentions of all the parties. Insofar as whether ADC is a legal right, the case of the counsel for Appellant is that ADC has been levied as per a statutory regulation and hence it has statutory force. There is no doubt in our mind that so long as ADC is levied through a Regulation, which TRAI is empowered to do under TRAI Act, it has statutory force. But, this also means that it is open to the Authority to levy or not levy the ADC. In the case of Tata Teleservices Vs Bharat Sanchar Nigam Ltd and Ors [2008(6)SCALE 523], the Supreme Court had occasion to observe as follows:-
“It is important to note that ADC does not arise out of any legal right. It arises out of TRAI’s consideration of smoothening the transition process during competition, i.e. providing support during transition period when costs of access is not fully recoverable from the revenues from access line monthly rental under the existing tariff regime due to competition in the market. In other words, ADC is a depleting regime for ADC purpose”.
40. The contention of the counsel for Appellant is that the above observation of the Apex Court is only an observation and not a decision. According to him, the Apex Court had, under the head ‘Finding’ later in the judgement, observed that the core issue in this case was not whether limited mobility is or is not possible, but whether fixed operators are liable to pay ADC when the service(s) provided by them fall in WLL(M) service. His contention, therefore, is that there is no finding of the Supreme Court that the Appellant does not have any legal right to ADC. The learned counsel for the 1st Respondent, on the other hand, points out that even if the observation of the Apex Court does not constitute part of the finding of the Court, it is still a reflection of the understanding of the Hon’ble court and so is binding on this Tribunal. Without entering this debate, we note that the Apex Court had, in the case of Reliance Infocomm Ltd Vs. Bharat Sanchar Nigam Ltd and Ors [2008(6)SCALE 503] observed under the head, ‘Finding’, that “It is for TRAI to consider the framework used for calculating IUC/ADC”. In other words, there is no decision of the Supreme Court stating that ADC is a matter of legal right insofar as BSNL is concerned. Reverting to the argument of the Appellant that because ADC is part of a statutory regulation, there is a legal right, we can only say that the fact of the statutory regulation makes ADC legal but it does not confer any legal right on BSNL to claim its perpetuation. The matter ultimately rests with the Authority.
41. Turning to the question whether progressive reduction/elimination of ADC adversely affects the principle of level playing field for BSNL vis-Ã -vis the private operators, we find from that statistics placed before us that as on 28.2.2009, the total number of landline telephones in the country is 37.73 million of a total of 413.85 million and of these 37.73 million land lines, the rural lines are only 10.56 million. In other words, the total land lines constitute only 9.11% of the total subscribers in the country and the rural land lines constitute just 2.55% of the total subscribers and 27.99% of the total land lines. Now, the justification for ADC arises essentially from the rural land lines, for which assistance is already provided under the USO fund. Even disregarding this, it is difficult to support the case that the deficit arising from the operations of rural landlines that constitute just 2.5%, should be made good by the 97.5% subscribers. Level playing field is a concept that applies to all service operators, be it in the public or private sector. It is quite open to the private sector operators also to argue that the principle of level playing field is being violated in their case since BSNL's operations are being partly subsidised by the subscribers. This is more so considering the fact that rural landlines constitute only 28% of the total landlines, meaning thereby that 72% of the landlines are in the non-rural areas i.e. Urban and Metro areas, where the tariff for landlines is under forbearance. One could quite reasonably argue that BSNL should therefore make efforts to balance its tariff in such manner as to compensate any losses arising to it from the rural operations by the tariff in the urban areas. Alternatively, if the tariff for landlines is being restricted by any policy directive of the Government, then it should be the responsibility of the Government to provide subsidy to adequately compensate the Public Sector Undertakings for the losses incurred in the discharge of duties imposed upon them by such policy directive. Whether such subsidy should be met from the USO fund or from the Government budget is an issue that merits examination separately; since this issue is not before us, we refrain from commenting upon the same. It is noteworthy that despite our specific query, the counsel for Appellant has not been able to furnish any policy directive of the Government on maintaining tariffs in the rural areas for landlines. We therefore hold that BSNL does not have any legal right to claim ADC and that in progressively reducing and ultimately eliminating the same, the authority has not violated the principle of level playing field between BSNL and other private operators.
42. We now turn to the question whether the Authority was right in progressively reducing and finally eliminating ADC through the impugned Regulations. ADC was originally intended to ensure that the wireline services do not suffer on account of the fact that the NLD and ILD services were liberalised and private operators allowed entry into these services. Simultaneously, the tariff for Cellular services was under forbearance. Besides, a large proportion of the telecom subscribers were on fixed wireline service and a significant percentage was in the rural areas. The subscribers in the rural areas could not afford rentals/ call charges beyond the then existing limits. It is for this reason that TRAI had also fixed a ceiling for the monthly rentals in the rural areas. There was thus a necessary case for introducing the concept of ADC. Originally, ADC constituted 30% of the telecom revenue but this was brought down to 12% in October, 2003, because the higher level of ADC resulted in high tariffs for other services which was not conducive to the growth of teledensity in the country. There is no gainsaying the fact that increased teledensity has contributed significantly to the economic growth and development in the country. In our view, therefore, the Authority was right in reducing the ADC to 12% of the telecom revenue in the Regulation dated 29.10.2003.
43. The Explanatory Memorandum to the Regulation of 29.10.2003 clearly points out that ADC would be a depleting regime and would ultimately be merged with the USO regime. Para 24 of the Explanatory Memorandum is significant and deserves to be cited:
“….The Authority noted that BSNL is already deploying latest technology and lower cost equipment in its expansion programme. Since wireless technology is being used, it is expected that some of the existing network will also be gradually replaced by such equipment. In short, the approach is to achieve full shift to FLLRIC cost in a gradual manner over a few years rather than a single year change. The latter would leave heavy stranded cost and would be quite impractical. The Authority therefore, decided to rely on costs for the current year, based on as recent audited costs as possible. For this purpose, it worked with more recent data than was used in the initial IUC exercise. The Authority was of the view that with the changes in technology and a reduction in equipment costs taking place rapidly, the amount of funding required for ADC would decline. Over time, within a few years, therefore, it may be possible to do away with the ADC regime, and the ADC regime could be merged with the USO regime. This would be similar to the situation in most other countries, where the ADC regime has been combined with the USO regime, rather than the ADC funding being provided through a separate ADC regime.”
44. It is thus clear that as far back as October, 2003, the concept of a depleting ADC regime was envisaged and clearly spelt out. As rightly pointed out by the counsels for Respondents, the Appellant has not contested this concept of a depleting ADC regime. We notice that the Telecommunication Interconnection Usage Charges (Fourth Amendment) Regulation (1 of 2005) dated 6.1.2005 also stated that ADC would be reduced and ultimately merged with the USO regime. Para 8 of the Explanatory Memorandum to this Regulation reads as follows:
“8. The large expected increase in subscriber base will also provide a substantial rise in the minutes that will fund the ADC for fixed service providers. Further, these minutes will, to a significant extent, be external to the BSNL, i.e. the ADC funding by the BSNL itself will increasingly become a smaller portion. These major developments will give us with an additional basis to further decease the ADC per minute charges, or if the ADC is funded through a revenue share regime, then for a decrease in the revenue share imposed for funding ADC. As already stated earlier by the Authority, the ADC regime will ultimately merge with the USO regime”. (emphasis supplied)
45. It is thus evident that the concept of an ADC regime that will dwindle and ultimately disappear was enunciated as far back as October 2003 and reiterated in January 2005. There is no evidence that the Appellant had challenged these Regulations either. In other words, the concept of such an ADC regime was not only enunciated long back but also accepted by the Appellant by virtue of not contesting the same and also by having acted in pursuance of the above Regulations. As is well known, the conduct of a party determines its rights and it can reasonably be concluded that having not contested the Regulations of either October, 2003 or January 2005 and having adjusted/received ADC under this regime, the Appellant is estopped from impugning these Regulations of February, 2006, March, 2007 and March, 2008 on the ground that ADC should not be a depleting regime.
46. We now address ourselves to the contention of the Appellant that while originally the ADC was calculated on the basis of certain norms, subsequently, there was no normative calculation and that this makes the impugned Regulations defective. In this connection, we notice that as per the Judgment of the Apex Court in the Reliance Infocomm case, cited supra, access deficit has to be calculated according to a formula which provides a reasonable return on the investment made and it is for TRAI to consider the framework used for calculating ADC. In the Explanatory Memorandum to the Regulation dated 23.2.2006, the Authority has explained the rationale behind not going into detailed calculations. Para 2 of the Explanatory Memorandum to the said Regulation reads as follows:
“Further DOT in USOF Guidelines have indicated that for household DELs installed prior to 1.4.2002, the difference in rental actually charged from rural subscribers and rent prescribed by TRAI for such subscribers shall be reimbursed until such time the Access Deficit Charge (ADC) prescribed by TRAI from time to time take into account such difference. It is also noted that the Authority is not regulating fixed line tariffs in urban areas but only the rental, free call allowance and local charges in rural areas are regulated by the Authority. It implies that after liberalisation of long distance services in the country, the Authority is giving sufficient time and opportunity to rebalance the tariff to various operators so that the cross-subsidy between long distance charges and rental etc is minimized. In case, operators are not doing tariff rebalancing or if they are doing reverse tariff rebalance, i.e., they are reducing the rental and in turn increasing the long distance charges, then the Authority is of the opinion that due to such action of the operators the ADC regime cannot continue in perpetuity. Keeping all these factors in mind, the Authority did not go into detailed calculations of admissibility of ADC but reduced it in such a way that the ADC regime is ultimately merged with USO regime from the year 2008-09 onwards and accordingly estimated the ADC payable to BSNL and other fixed line operators including MTNL for the year 2006-07. The Authority had expressed similar opinion in its IUC Regulation dated October 29, 2003 (Para-24 of the Explanatory Memorandum) and also in its January 6, 2005 IUC Regulations (Para-25 of the Explanatory Memorandum).” (emphasis supplied)
47. Para 24 of the Explanatory Memorandum to the IUC Regulation dated 29.10.2003 was already extracted above. Para 25 of the Explanatory Memorandum to the IUC Regulation of 6.1.2005 also quotes Para 24 of the Explanatory Memorandum to the IUC Regulation of 29.10.2003 and reiterates the principle. As pointed out above, the Appellant has not challenged either of these Regulations and therefore, by implication, has accepted the principle that the calculations made in the IUC Regulation of 24.1.2003 will not be repeated. Even otherwise, as brought out in Para 38 above, the Government itself had stated in the Parliament that BSNL does not have the required data to calculate the ADC either due to it or being adjusted by it. Even in January 2003, the Authority went by the data provided by BSNL and later found that in several cases, the data furnished by BSNL was higher than actual costs. If the Authority were to go only by the data furnished by BSNL and if the BSNL admittedly did not have reliable data, it would be reasonably inferred that BSNL, being an interested party, would present the figures in such a manner as to increase the ADC receivable by it. All ADC is ultimately paid for by the subscriber. It is naturally in the interest of the consumer that ADC which is claimed by BSNL and paid to it is minimized so as to reduce the burden on the consumer , reduce tariffs and promote teledensity.
48. Keeping in view the above factors, we find no impropriety or irrationality in the Authority in not having entered into detailed calculations regarding ADC. The counsel for Respondent pointed out that the total amount of ADC received by BSNL all these years far exceeds the costs incurred by it. There is reason to believe that this could be so. Without determining this specific aspect, we hold that the Authority was right in the manner of arriving at the quantum of ADC each year.
49. In all the three Appeals, the Appellant has alleged that the Respondent was wrong in fixing uniform termination charges for wireline and wireless services at Re. 0.30 per minute. It has been further contended that when BSNL was to get its due amounts for termination charges for wireline services, the Regulator had determined the cost as Re. 0.23 per minute and had adjusted a huge amount of more than Rs. 1400 crore on the premise that the termination charge fixed in IUC was Re. 0.30 per minute. The contention of the Appellant is that the cost per minute for termination of a call on cellular network is only 1/3rd of the corresponding cost on a wireline network. Its contention is that, by fixing a uniform termination charge, the Regulator had extended an unlawful benefit of Rs. 6200 crore to the private cellular operators. While this is the contention in all the three Appeals, no material has been adduced before us during the course of arguments to support the contention that the cost of termination of the cellular traffic is 1/3rd of the cost of termination in the fixed network. The case of the Appellant is that the private cellular operators have neither paid their license fee in full when the Government of India extended waiver of license fee nor have they made any investments for providing rural telephony. While this may or may not be true, this contention has no relevance to the determination of the cost of termination. There is no decision of the Authority that mobile termination charge of cellular operators would be Re. 0.13. The methodology of calculating the mobile termination charge was explained in the Regulation dated 29.10.2003. We do not find any material to support the contention of the Appellant and accordingly hold that this contention is without merit.
50. We would now like to turn to one issue which has not figured in the original prayer but was raised in the Pleadings as well as during the course of arguments. The contention of the counsel for Appellant is that ADC regulation cannot be amended unless the IUC regulation is amended since ADC is part of IUC regulation. According to him, since ADC was announced with the IUC regulation in January 2003 and continued as such through subsequent regulations, it can only be amended, if at all through IUC regulation. The counsel for Respondent, on the other hand, contends that ADC is not part of IUC and ADC amendment can be made without making any change in the IUC regulation. His refers, in this context, to the Explanatory Memorandum to the IUC Regulation 2008 which stated that ADC is not and cannot be part of IUC because IUC consists of only three components -- Origination Charge, Carriage Charge and Termination Charge. As pointed out by him, in Para 31 above, ADC is payable to BSNL even though there is no case of interconnection. According to the counsel, Paras 8, 9 and 10 of the Explanatory Memorandum to the IUC regulation 2008 clearly state that "Interconnection Usage Charges means the charge payable by one service provider to one or more service providers for usage of the network elements for origination, transit and termination of the calls. ..... Therefore the principle followed by the Authority was that every cost of all the elements of the network required for completion of a call has been accounted for in IUC and any deficit arising out of rentals and to make calls affordable was accounted for in ADC. Thus the purpose of ADC was different from IUC.... In this regard, it may also be noted that in per minute based ADC regime, in most of the scenarios the ADC was to be paid to BSNL, even when no IUC is required to be payable to BSNL as it is not involved in the completion of the call. ... similarly in the percentage of AGR-based ADC regime, all the NLDOs and ILDOs are paying ADC to BSNL, even if some of them are not carrying voice traffic and not having interconnection with BSNL. In view of all the above, the Authority found no merit in the argument that ADC is an integral part of IUC”. The learned counsel also stated that the Hon’ble Supreme Court in the Reliance Infocomm case, cited supra, had observed that ADC is essentially to compensate the difference between costs and local call revenue and that it is actually a subsidy.
51. We have considered the contentions of both the counsels. We find that the arguments of the learned counsel for Respondent are well founded. In fact, this issue has been set at rest by the Authority itself, which issued the Regulations. Paragraphs 8 to 10 of the Explanatory Memorandum to the IUC Regulations, 2008 leave no doubt whatsoever that while the Interconnection Usage Charges Regulation has been used by TRAI to bring in ADC, ADC is not an integral part of interconnection. Clause 2(x) of the IUC Regulations, 2008 reads as follows: ‘Interconnection Usage Charges (IUC) means the charge payable by one service provider to one or more service providers for usage of the network elements for origination, transit and termination of the calls’. Besides, in the Reliance Infocomm case, cited supra, the Hon’ble Supreme Court dealt with IUC and ADC as distinct elements. It observed that ADC is essentially to compensate for the difference between the costs and local calls revenue. The Apex Court also observed that categorization of services for levying a charge by way of IUC/ADC is a matter of policy and revenue recognition, which is the part of the regulatory regime. We therefore hold that while the IUC Regulation may have been used by TRAI to bring in ADC, ADC is not an integral part of interconnection and that IUC and ADC are distinct elements. We hold that the Authority had rightly concluded that the purpose of ADC was different from IUC and that ADC is not an integral part of IUC. It follows therefrom that demand for ADC will have to be on its own merits and not based on alleged violations of IUC.
52. As regards ADC, we hold that the Appellant has no legal right to ADC; that the ADC has rightly been designed as a depleting regime; that the ADC was rightly terminated in the year 2008-09 and that the manner of calculating ADC each year was fair and reasonable, given the facts available with TRAI. We do not find any basis to support the contention of the Appellant that the Mobile Termination Charges have been wrongly fixed by the Authority.
53. All the three Appeals are accordingly dismissed with the above findings. No costs.