State-owned mobile and fixed line telecom operator BSNL has accused the telecom regulator of “over-reaching” the judgments of the Supreme Court and the Telecom Dispute Settlement and Appellate Tribunal (TDSAT) by questioning the need for inclusion of capital expenditure in call costs.

It said it is “shocked and surprised” at the move by the Telecom Regulatory Authority of India (TRAI).

TRAI had, in April, brought out a discussion paper asking, among other things, whether the amounts spent on network expansion by telecom operators should be included in calculating costs when determining normative charges.

BSNL, as a former government monopoly and an ‘asset heavy’ company, has been reeling under out-of-control costs even as its revenues and services have failed to catch up with market demands. The firm said that it is firmly in favor of including ‘capital expenditure recovery’ mechanisms — such as depreciation charges — while calculating the costs per minute incurred by telecom operators.

The cost per minute is then used to determine how much money should be paid to an operator by another operator for helping a subscriber on the latter to complete a call to a subscriber on the former.

BSNL said such costs — called ‘termination charges’ or interconnect charges (IUC) are at 30 paise per minute — according to its calculations. At present, the cost of termination is stipulated to be around 20 paise per minute by the TRAI — implying a cost of around Rs 50-60 paise for a local call and Rs 1 per minute for national long distance. A similar calculation by Mukesh Ambani’s Infotel Broadband yielded the figure of 8.5 paise per minute.

Like other big operators, BSNL claimed that its costs are much higher and therefore, it must be paid a higher charge by other operators desirous of connecting to its subscribers. According to its calculations, it costs Rs 1.45 per minute on its side alone to let another subscriber from a non-BSNL network make a call to a BSNL landline customer.

In its response on the issue, BSNL alleged that TRAI was over-reaching its powers by even raising the question whether capital expenditure — in the form of capital expenditure itself or in the form of depreciation — should be made part of the overall costs incurred by an operator to complete a call and connect its subscriber to a call.

“..we are shocked and surprised that various issues related to fixation of Interconnection Usage Charges which have already been settled/conclusively decided by the Hon’ble TDSAT in its judgement dated 29.09.2010 have again been floated by TRAI for discussion.

“In our humble submission, once issues have been thoroughly deliberated and decided by the Hon’ble TDSAT by hearing all the parties including TRAI, the same no more remain open for discussion or deliberations in the consultation process by the TRAI.. Seeking comments / views on the issues already settled by the Hon’ble TDSAT amounts to over-reaching these judgements,” BSNL said.

The present controversy arose after both the Supreme Court and the TDSAT, technically more powerful than the TRAI, came to the conclusion that expenditure incurred on creating towers and sheds and other equipment was a legitimate part of the overall expenditure involved in ‘connecting a call.’

Such expenditure is usually called ‘Capital Expenditure’ or CAPEX and are not considered part of the operating expenses or OPEX immediately. Instead, CAPEX is counted ‘bit by bit’ as ‘depreciation’ over the entire lifetime of the asset. For example, if an operator spends Rs 25 crore to erect a tower in a quarter, the entire Rs 25 crore is not considered as part of the ‘operating expenditure’ of that quarter. Instead, it is spread over the expected lifetime — 10 years or so — and a small part is written off in the form of ‘depreciation’ every quarter.

Some operators want the CAPEX to be counted immediately in operating expenses itself, whether or not it is counted as depreciation — raising the prospect of ‘double counting’ of the same expense.

In its judgement last year, TDSAT gave an ambiguous resolution of the issue. Instead of spelling out the resolution, it merely said that TRAI should have taken into consideration the effect of capital costs, leading to operators like Bharti Airtel and BSNL interpreting the judgment as saying that CAPEX be counted immediately as operating expense.

TDSAT had said: “It must not be forgotten that every operator must keep its network maintained for use by its own subscribers as well as by subscribers of another operators on equal basis. If that be so, we fail to see any reason as to why the traffic sensitive cost contained in CAPEX should be kept out of consideration. In any event the effect thereof should have been in our opinion taken into consideration by TRAI. Sticking to old methodology by itself may not be a virtue.”

“Accordingly, all the relevant costs should be taken into consideration by the Authority for calculation of IUC,” BSNL said in its letter to the TRAI on the issue of review of termination charges.


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