Telecom Disputes Settlement Tribunal
Mahanagar Telephone Nigam Ltd. And Anr. vs Telecom Regulatory Authority Of India on 31 January, 2005
Equivalent citations: (2005)3COMPLJ478(TELECOMDSAT)
ORDER
1. In this appeal filed under Section 14 of the Telecom Regulatory Authority of India Act, 1997 (for short Act) by Mahanagar Telephone Nigam Ltd. (MTNL), appellant has challenged the decision of Telecom Regulatory Authority of India (TRAI), respondent, in terms of reducing the access deficit charge (ADC) of the MTNL by amending Tele-communication Interconnection Usage Charges Regulation, 2003.
2. TRAI has amended Telecommunication Interconnection Usage Charges Regulation, 2003, in exercise of its powers under Section 36 read with Sub-clauses (ii), (iii) and (iv) of Clause (b) of Section 11(1) of the Act by Telecommunication Interconnection Usage Charges (4th Amendment) Regulation (1 of 2005) by notification dated 6 January 2005, and bringing into force the amended regulation with effect from 1 February 2005.
3. At the outset, a preliminary objection has been raised by TRAI questioning the jurisdiction of this Appellate Tribunal (TDSAT) to entertain appeal as it contended that regulation framed by TRAI in the exercise of its power under Section 36 are of statutory nature and without any challenge by the appellate body, this regulation having become part of the main statute, i.e., the Act. It was submitted by Mr. G.L. Sanghi, learned Senior Advocate for TRAI, that since the issue of jurisdiction had been raised, that should be tried as a preliminary issue. After hearing arguments of the parties we did not agree with TRAI as we were of the view that TDSAT has jurisdiction to decide the dispute raised by the appellant even though arising under the regulation and the said reasons would follow and proceeded to hear the appeal on grant of interim relief on merits of the case.
4. The objection of TRAI to the jurisdiction of TDSAT has been two-fold: (i) that TDSAT is authorised only to 'hear and dispose of appeal' against any direction, decision or order of TRAI under the Act and there is no provision to hear appeal against regulation framed by the TRAI in the exercise of its power under Section 36 of the Act, and (ii) regulation is in the nature of subordinate legislation and framed by the TRAI in the exercise of its power under Section 36 of the Act and since the regulation becomes part of the main statute, regulation is thus beyond any challenge by the appellate body.
5. In support of its contention TRAI referred to a decision of the Supreme Court in the case of West Bengal Electricity Regulatory Commission v CESC Ltd. (2002) 8 SCC 715: AIR 2002 SC 3588. In this case, West Bengal Electricity Regulatory Commission (for short Commission) framed Regulations called the West Bengal Electricity Regulatory Commission (Conduct of Business) Regulations, 2000 in exercise of its power under Section 27 of the Electricity Regulatory. Commission Act, 1998 (for short Electricity Commission Act). As we read this judgment, we fine that in paras 14 to 23 Supreme Court enumerates the function of the Commission including its power to frame Regulations. Paras 14 to 23 are as under:
"14. Section 22 of the Act enumerates the functions of the Commission. The most important function to be noticed in this section, at least so far as these appeals are concerned, is the power of the Commission to determine the tariff for electricity, be it wholesale, bulk, grid or retail. This determination of tariff under the Act will have to be made in the manner provided in Section 29 of the said Act. Section 22(1)(d) obligates the Commission to promote competition, efficiency and economy in the activities of the electricity industries to achieve the objects and purposes of this Act.
15. Section 26 empowers the Commission to authorise any person as it deems fit to represent the interest of the consumer in all the proceedings before it.
16. Section 27 of the 1998 Act provides for an appeal to the High Court, by any person aggrieved by any decision or order of the State Commission. It lays down that no appeal or revision would lie to any other court.
17. Section 29 provides for determination of the tariff by the State Commission. Since the interpretation of this section is a major bone of contention between the parties in these appeals, it is necessary for us to reproduce the same in its entirety:
'29. Determination of tariff by State Commission.--(1) Notwithstanding anything contained in any other law, the tariff for intra-State transmission of electricity and the tariff for supply of electricity, grid, wholesale, bulk or retail, as the case may be, in a State (hereinafter referred to as the 'tariff'), shall be subject to the provisions of this Act and the tariff shall be determined by the State Commission of that State in accordance with the provisions of this Act.
(2) The State Commission shall determine by regulations the terms and conditions for the fixation of tariff, and in doing so, shall be guided by the following, namely--
(a) the principles and their applications provided in Sections 46, 57 and 57-A of the Electricity (Supply) Act, 1948 (54 of 1948) and the Sixth Schedule thereto;
(b) in the case of the Board or its successor entities, the principles under Section 59 of the Electricity (Supply) Act, 1948 (54 of 1948);
(c) that the tariff progressively reflects the cost of supply of electricity at an adequate and improving level of efficiency;
(d) the factors which would encourage efficiency, economical use of the resources, good performance, optimum investments, and other matters which the Stale Commission considers appropriate for the purposes of this Act;
(e) the interests of the consumers are safeguarded and at the same time, the consumers pay for the use of electricity in a reasonable manner based on the average cost of supply of energy;
(f) the electricity generation, transmission, distribution and supply are conducted on commercial principles;
(g) national power plans formulated by the Central Government.
(3) The State Commission, while determining the tariff under this Act, shall not show undue preference to any consumer of electricity, but may differentiate according to the consumer's load factor, power factor, total consumption of energy during any specified period or the time at which the supply is required or the geographical position of any area, the nature of supply and the purpose for which the supply is required.
(4) The holder of each licence and other persons including the Board or its successor body authorised to transmit, sell, distribute or supply electricity wholesale, bulk or retail, in the State shall observe the methodologies and procedures specified by the State Commission from time to time in calculating the expected revenue from charges which he is permitted to recover and in deter- mining tariffs to collect those revenues.
(5) If the State Government requires the grant of any subsidy to any consumer or class of consumers in the tariff determined by the State Commission under this section, the State Government shall pay the amount to compensate the person affected by the grant of subsidy in the manner the State Commission may direct, as a condition for the licensee or any other person concerned to implement the subsidy provided for by the State Government.
(6) Notwithstanding anything contained in Sections 57-A and 57-B of the Electricity (Supply) Act, 1948 (54 of 1948) no rating committee shall be constituted after the date of commencement of this Act and the Commission shall secure (sic ensure) that the licensees comply with the provisions of their licence regarding the charges for the sale of electricity both wholesale and retail and for connections and use of their assets or systems in accordance with the provisions of this Act."
18. It is to be seen that this section provides for the methodology to be followed by the Commission in determination of the tariff.
19. Section 37 of the Act requires the Commission to ensure transparency while exercising their powers and discharge of their functions.
20. Section 49 of the Act gives overriding effect over this Act to only two other enactments, namely, the Consumer Protection Act, 1986 and the Atomic Energy Act, 1962, while Section 52 gives overriding effect to the provisions of the 1998 Act, notwithstanding anything inconsistent therewith, in any enactment other than this Act.
21. Section 57 empowers the State Government to make rules which will have to be notified in the Official Gazette.
22. Section 58 empowers the Commission to make regulations, which also have to be notified in the Official Gazette and the regulations have to be consistent with the Act and the rules. Sub-section (2) of Section 58 in Clause (d), specifically provides that the Commission is empowered to make regulations, providing for the manner in which charges for energy may be determined under Sub-section (2) of Section 29.
23. Section 59 obligates that the rules and regulations made under this Act have to be placed before the Houses of the Legislature. It is not in dispute that the rules framed by the State of West Bengal, as also the regulations framed by the State Commission have been placed before the Legislature as required under Section 59 of the Act."
5.1 Para 25 of the judgment refers to that particular regulation framed by the Commission entitling any group of consumers to participate in any proceedings before this Commission.
"25. In exercise of its power under Section 58 of the 1998 Act, the State Commission herein has framed the West Bengal Electricity Regulatory Commission (Conduct of Business) Regulations, 2000 (the regulations). Regulation 18 thereof provides for the Commission to permit an association or other bodies corporate, or any group of consumers to participate in any proceeding before the Commission. It also empowers the Commission to control the nature and extent of participation of these groups before the Commission. Regulation 19 thereof provides for recognition of associations, groups, forums or body corporate or registered consumer associations for the purpose of representation, before the Commission."
5.2 After the Electricity Commission fixed the tariff, an appeal was taken to Calcutta High Court by the aggrieved party which questioned framing of regulations providing representations to the consumers. High Court allowed the appeal and itself re-determined the tariff. On an appeal to the Supreme Court by the Commission, the Court considered the vires of the regulations with particular reference to the regulations which according to the High Court permitted indiscriminate representation to the consumers before the Commission. (paras 41 to 50 of the judgment). After examining various provisions of the Act and regulations, Supreme Court held that regulations were not arbitrary and were in conformity with the provisions of the Electricity Commission Act. The question before the Supreme Court was whether the High Court sitting as an Appellate Court under Section 27 of the Electricity Commission Act had jurisdiction to go into the validity of the regulations framed under that Act and if so, factually the regulations as found by the High Court were contrary to the statute. Supreme Court gave the answer in negative and observed (in para 44) as under:
"44. Having held on merits that the regulations are not arbitrary and are in conformity with the provisions of the Act, we will now consider whether the High Court could have gone into this issue at all in an appeal filed by the respondent Company. First of all, we notice that the High Court has proceeded to declare the regulations contrary to the Act in a proceeding which was initiated before it in its appellate power under Section 27 of the Act. The appellate power of the High Court in the instant case is derived from the 1998 Act. The regulations framed by the Commission are under the authority of subordinate legislation conferred on the Commission in Section 58 of the 1998 Act. The regulations so framed have been placed before the West Bengal Legislature, therefore, they have become a part of the statute. That being so, in our opinion, the High Court sitting as an Appellate Court under the 1998 Act could not have gone into the validity of the said regulations in exercise of its appellate power." 5.3 The 1998 Act refers to the Electricity Regulatory Commission Act, 1998.
6. It is thus submitted by TRAI that TDSAT cannot exercise its appellate power under the Act to question the validity of the impugned regulation. It was stressed that TDSAT is authorised to 'hear and dispose of appeal' against any direction, decision or order of TRAI under the Act and there is no provision to hear appeal against regulation framed by the TRAI in the exercise of its power under Section 36 of the Act.
7. The question has been earlier raised before us in a Review Petition No. 2 of 2004 [decided on 10 August 2004 {Bharat Sanchar Nigam Limited v Telecom Regulatory Authority of India (2005) 2 Comp LJ 191 (TDSAT)}] in Appeal No. 2 of 2004 [decided on 21 April 2004 entitled Bharat Sanchar Nigam Limited v Telecom Regulatory Authority of India (2005) 2 Comp LJ 141 (TDSAT)}] and this plea was rejected by this Tribunal. However, since the arguments have again been addressed in somewhat detail, we again proceeded to consider this question.
8. Appellant on the other hand in support of their stand relied on a decision of the Supreme Court in the case of L. Chandra Kumar v Union of India and Ors. (1998) 1 Comp LJ 385 (SC): (1997) 3 SCC 261 to support their contention that TDSAT has power to go into the validity of the regulation. We find that in this case Supreme Court was considering constitution of the Tribunals under Article 323-A and Article 323-B of Constitution of India. Broad issues which arose before the Supreme Court are:
"(1) Whether the power conferred upon Parliament or the State Legislatures, as the case may be, by Sub-clause (d) of Clause (2) of Article 323-A or by Sub-clause (d) of Clause (3) of Article 323-B of the Constitution, to totally exclude the jurisdiction of 'all courts', except that of the Supreme Court under Article 136, in respect of disputes and complaints referred to in Clause (1) of Article 323-A or with regard to all or any of the matters specified in Clause (2) of Article 323-B, runs counter to the power of judicial review conferred on the High Courts under Articles 226/227 and on the Supreme Court under Article 32 of the Constitution?
(2) Whether the Tribunals, constituted either under Article 323-A or under Article 323-B of the Constitution, possess the competence to test the constitutional validity of a statutory provision/rule?
(3) Whether these Tribunals, as they are functioning at present, can be said to be effective substitutes for the High Courts in discharging the power of judicial review? If not, what are the changes required to make them conform to their founding objectives?"
8.1 After elaborate discussion of various provisions of the Constitution and its earlier decisions, Supreme Court summarised its position as under:
"93. Before moving on to other aspects, we may summarise our conclusions on the jurisdictional powers of these Tribunals. The Tribunals are competent to hear matters where the vires of statutory provisions are questioned. However, in discharging this duty, they cannot act as substitutes for the High Courts and the Supreme Court which have, under our constitutional set-up, been specifically entrusted with such an obligation. Their function in this respect is only supplementary and all such decisions of the Tribunals will be subject to scrutiny before a Division Bench of the respective High Courts. The Tribunals will consequently, also have the power to test the vires of subordinate legislations and rules. However, this power of the Tribunals will be subject to one important exception. The Tribunals shall not entertain any question regarding the vires of their parent statutes following the settled principle that a Tribunal which is a creature of an Act cannot declare that very Act to be unconstitutional. In such cases alone, the High Court concerned may be approached directly. All other decisions of these Tribunals, rendered in cases that they are specifically empowered to adjudicate upon by virtue of their parent statutes, will also be subject to scrutiny before a Division Bench of their respective High Courts. We may add that the Tribunals will, however, continue to act as the only courts of first instance in respect of the areas of law for which they have been constituted. By this, we mean that it will not be open for litigants to directly approach the High Courts even in cases where they question the vires of statutory legislations (except, as mentioned, where the legislation which creates the particular Tribunal is challenged) by overlooking the jurisdiction of the Tribunal concerned.".
9. It is the submissions of the petitioners that though the judgment in L. Chandra Kumar case (1998) 1 Comp LJ 385 (SC) pertains to the Tribunals constituted under Articles 323A and 323B of the Constitution, the principles set out in para 93 would also apply to any other statutory Tribunal constituted by the law of Parliament. They stressed upon the following observations in the para:
"We may add that the Tribunals will, however, continue to act as the only courts of first instance in respect of the areas of law for which they have been constituted. By this, we mean that it will not be open for litigants to directly approach the High Courts even in cases where they question the vires of statutory legislations (except, as mentioned, where the legislation which creates the particular Tribunal is challenged) by overlooking the jurisdiction of the Tribunal concerned."
10. To understand the rival contentions--It will be appropriate to set out the relevant provisions of the Act. Before that, however, it must be noted that after the amendment to the Act by Act 2 of 2000 with effect from 24.1.2000--TRAI has been divested of its power to resolve disputes and dispute resolution under the Act now vest with the TDSAT which was constituted under that very Amendment Act. Functions of the TRAI are what are described in Section 11 of the Act and that of TDSAT under Section 14 thereof. These respective powers of TRAI and TDSAT were clearly spell out in Appeal No. 2 of 2004 decided on 21 April 2004 [Bharat Sanchar Nigam Ltd. v Telecom Regulatory Authority of India {(2005) 2 Comp LJ 141 (TDSAT)}) . Section 12 of the Act empowers the TRAI to call for information, conduct investigation, etc., and under Section 13 TRAI has power to issue direction. Section 36 gives power to TRAI to make regulations. Section 29 prescribes for penalty for contravention of direction of TRAI. Under Section 37 rules framed by the Central Government and regulations framed by the TRAI are to be laid before Parliament. Appeal against the order of TDSAT lies to Supreme Court under Section 18 of the Act, only on a substantial question of law making TDSAT final fact finding body.
11. The questions which arise for consideration would be:
(a) If TRAI can make regulations in the discharge of its functions under Sub-clauses (ii), (iii) and (iv) of Clause (b) of Sub-section (1) of Section 11?
(b) Can regulations under Sub-clauses (ii), (iii) and (iv) be framed under general powers of Sub-section (1) of section 36 when read with Sub-section (2) thereof?
II was submitted by Mr. Sundaram, learned Senior Advocate for MTNL that regulations under Sub-section (1) of Section 36 have to be procedural in nature only, if one reads all these sub-clauses of Clause (b) of Sub-section (1) of Section 11 and Sub-section (2) of section 36.
(c) If in all the sub-clauses of Clause (b), TRAI proceeds to frame Regulations, could it divest the jurisdiction of TDSAT as appellate body conferred by the Act?
12. We put it to Mr. Sanghi if any dispute arises under the regulations framed by the TRAI --could it be that that shall be adjudicated by TRAI and jurisdiction of TDSAT to determine that dispute would be barred? His answer was in affirmative. That looks rather strange to us. Can regulations which are in the nature of a subordinate legislation overtake the provision of the Principal Act? If regulations under Sub-clauses (i) to (ix) of Clause (b) of section 1 of the Act and also under Clause (c) are all framed by the TRAI there will be no direction, decision or order of the TRAI which could be subject matter of appeal to TDSAT and that would in effect mean repealing Clause (b) of section 14 of the Act. We also put it to Mr. Sanghi that if there is contravention of any direction issued by TRAI it is punishable under section 29 and what will happen if there is contravention of any regulation? He said it was for the Parliament to amend the law. There was no clear answer to our question as to what was the procedure which would have to be gone into before issuing direction or regulation. It appears to us that procedure for issuing direction or regulation has to be the same. As to what is the difference between a direction and regulation, it was the submission of Mr. Sanghi that direction can be given to a particular service provider and regulation can be of general applicability. This is not correct as we have found in number of cases that directions have also been issued which are applicable generally, e.g., that what was in Appeal No. 2 of 2004 [decided on 21 April 2004 entitled Bharat Sanchar Nigam Limited v Telecom Regulatory Authority of India (2005) 2 Comp LJ 141 (TDSAT)]. It does not appear to us the right approach of the TRAI to clothe a direction in the garb of regulation and then tell the TDSAT that it has no appellate power. Both the lower Authority and the Appellate Authority have to exercise their respective jurisdiction as defined in the Act constituting them. We could not get any answer which expert body will consider if the reduction in ADC by TRAI as claimed by the MTNL, is factually and legally correct if not TDSAT. As a matter of fact, in West Bengal Electricity case the Supreme Court itself commended the creation of TDSAT by recommending a similar expert appellate body be created under the Electricity Commission Act dealing with the type of factual and technical matters and that High Court was not an appropriate appellate body for that purpose. The question of exclusive jurisdiction of an expert body like TDSAT has recently been discussed in the decision of the Supreme Court in the case of Clariant International Ltd. v Securities and Exchange Board of India (2004) 4 Comp LJ 52 (SC): (2004) 8 SCC 524.
13. The Supreme Court in the case of Cellular Operators Association of India v Union of India (2003) 1 Comp LJ 1 (SC): (2003) 3 SCC 186 had clearly spelt out the functions of TRAI as well as of the TDSAT. It has been clearly held that TDSAT is an expert body. Supreme Court in this case examined the extent and parameters of the jurisdiction of TDSAT under section 14 of the Act. Supreme Court also held that TDSAT was the--
"Only forum for redressing the grievance of an aggrieved party inasmuch as the appellate jurisdiction to this court is only on a substantial question of law and the jurisdiction of Civil Court for filing a suit is also ousted. It has already been held by us that the Tribunal has the power to adjudicate any dispute but while answering the dispute, due weight has to be given to the recommendation of the TRAI, which consists of experts (...) A bare comparison of provisions of section 14 which confers jurisdiction on the Tribunal and section 18 which confers jurisdiction on the Supreme Court, would unequivocally indicate that the Tribunal has much wider jurisdiction than the jurisdiction of this court under section 18, as this court would be entitled to interfere only on a substantial question of law, which arises from the judgment of the Tribunal and not otherwise."
14. justice S.B. Sinha in his concurring judgment said TDSAT is itself an expert body and its jurisdiction is wide having regard to Sub-section (7) of section 14A thereof and further said that:
"It is jurisdiction that extends to examining the legality, propriety or correctness of a direction/order or decision of the authority in terms of Sub-section (2) of section 14 as also the dispute made in an application under Sub-section (1) thereof. The approach of the learned TDSAT, being on the premise that its jurisdiction is limited or akin to the power of judicial review is, therefore, wholly unsustainable. The extent of jurisdiction of a court or a Tribunal depends upon the relevant statute. TDSAT is a creature of a statute. Its jurisdiction is also conferred by a statute. The purpose of creation of TDSAT has expressly been slated by the Parliament in the Amending Act of 2000. TDSAT thus failed to take into consideration the amplitude of its jurisdiction and thus misdirected itself in law."
15. The other question that arises is even if, the regulations are valid piece of subordinate legislation, how can jurisdiction of TDSAT be barred if any dispute arises under the regulation? For example, in the present case, it is the contention of MTNL that its entitlement to ADC has been wrongly reduced by THAI on various nonexistent grounds. Who is going to consider that, if not the TDSAT, an expert body? jurisdiction which the High Court exercises under Articles 226 and 227 of the Constitution is not the same as is exercised by an expert appellate body in appeal. As Supreme Court itself has said in West Bengal Electricity Regulatory Commission case (2002) 8 SCC 715, supra, that neither the High Court nor the Supreme Court would in reality be appropriate appellate forums in dealing with 'this type of factual and technical matters'. Supreme Court also said that 'it could be more appropriate and effective if statutory appeal is provided to a similar expert body, so that various questions which are factual and technical that arise in such an appeal, get appropriate considerations in the first appellate stage also. These observations made by the highest judicial authority, i.e., the Supreme Court, fully apply to the present case before us which involves consideration of access deficit charge (ADC)--a matter of highly complicated and technical nature. Argument by TRAI is in complete variance with these observations of the Supreme Court. Moreover, Supreme Court has also held that at least one right of appeal be given to the aggrieved party. Arguments advanced by TRAI would deprive the aggrieved party the MTNL of the right of appeal. In the case of the West Bengal Electricity Regulatory Commission (2002) 8 SCC 715 we find that Supreme Court has found subordinate legislation to be valid. That is not so in the present case before us as we are also of the view that TRAI cannot frame regulation under those sub-clauses which do not provide for framing of regulations. It has certainly power to issue directions.
16. We may also note that West Bengal Electricity Regulatory Commission case (2002) 8 SCC 715 was also considered by Supreme Court in the case of COAI v Union of India [Cellular Operators Association of India v Union of India (2003) 1 Comp LJ 1 (SC)] though in a different context. The Supreme Court said--
"it may be stated that three Judges Bench was considering the extent of jurisdiction of the High Court in exercise of its appellate power under section 27 of the Electricity Regulatory Commission Act, 1998 ....".
16.1 In West Bengal Electricity Regulatory Commission case (2002) 8 SCC 715, Supreme Court held, as noted above, the regulation to be valid piece of regulation within the statute. That is not so in the present appeal before us.
17. In this view of the matter, we reject the submission of TRAI that it has effectually barred jurisdiction to hear the present appeal by framing regulation under section 36 of the Act. We rather hold that even if the regulation in the present case is a subordinate legislation, validly made, any dispute arising thereunder is within the jurisdiction of TDSAT as conferred upon it by the Act and no subordinate legislation can take away that jurisdiction. Any clause in the regulation which seeks to divest the TDSAT to adjudicate upon any dispute is non est and has to be ignored.
18. We, therefore, proceed to hear the appeal on merit on the question of grant of interim relief.
19. Since the matter relates to levy of access deficit charges [ADC], it would be in order to briefly describe at the outset this concept and its historical background.
20. In the Telecommunication Interconnection Usage Charges (IUC) Regulation 2003 notified by TRAI on 24.1.2003, this concept was introduced and explained in the following words in the Explanatory Memorandum:
"20. At present, rents charged for the basic telephone service are below costs. Keeping in mind the important objective of affordability, the Authority has considered a very limited increase in the prevailing monthly rentals. The difference between the average monthly rental and cost based monthly rental has to be obtained through access deficit charges. To this amount, we also need to add the costs of free calls and any below cost tariffs that might be put in place to attain the policy objectives of the Government to keep basic telephone service affordable. This total deficit due to cost minus regime has to be funded through the access deficit charge (ADC) mainly recovered through retail long distance tariff (..)."
"22. The issue of affordability is critical for local calls as such calls provide essential means of communication within the local community of interest. It is, therefore, fell that a local call charge of Rs. 1.00 per minute would be too high in that context. The Authority has, therefore, not covered the entire ADC related cost from the local call charge. The amount that is not recovered from such calls has been included in the ADC component of IUCs to be realized from long distance (STD/ISD) retail tariff."
21. The consultation paper of TRAI on access deficit review dated 23.6.2004 also explains the concept in para 1.1 as under:
"1.1 The opening up of telecom sector has witnessed intense competition, especially, in the mobile and long distance sector and steep fall in the tariff for long distance calls, both international long distance calls and national long distance calls. Access deficit arises when the tariff specified for access does not cover the cost of providing access. The ADC compensates for below cost rentals especially, in rural areas, local charges, provision for free calls, etc., to make the basic telecom services affordable to the common man to promote both universal service and universal access as per NTP'99. Prior to opening up of the telecom sector, the access deficit was being taken care of through a cross subsidy from domestic and international long distance tariffs. With stiff competition in the national and international long distance segments as well as in the access network (fixed line, WLL-M and cellular mobile), there is a sharp decline in the prevailing tariffs. Market forces through open competition and the implementation of cost based termination and carriage charges has led to a situation that operators are [no?] longer in a position to lake advantage of cross subsidy through long distance traffic as was the case earlier. As a result, there is a need to compensate the access deficit for fixed through regulatory intervention."
22. The need for ADC to bridge this gap between 'below the cost rentals' and local rates of calls for fixed lines' was explained in the TRAI Consultation Papers on Tariffs for Basic Services. Some extracts are being given to give the historical background:
"Moreover, the teledensity of the country is still low, and the objective of affordability will continue to be of great importance in any regulatory policy regarding telecom tariffs. For both these reasons, it appears that there will continue to be a need to regulate basic service tariffs for some more time and that complete rebalancing of PSTN tariff, i.e., introduction of cost based rates for both local and long distance services can be achieved only in phases. In the interim, the charges payable for long distance origination and termination may have to provide for what may be called 'access deficit charge (ADC) which in effect will be a means to subsidise the below cost tariffs, i.e. rental / costs call charges.' [From Consultation Paper on Tariff for Basic Services, dated 23 September 2003] "(...) to increase the below cost prices so that these cover atleast some part of the uncovered costs, and the second that to the extent that costs of access are not covered by tariffs, an access deficit charge (ADC) should be given to the access provider who incurs access deficit. In this regard, it is worth noting that the fixed service provider incurs an access deficit due to the rental being below cost, the provision of free calls and call charge for certain calls being below cost." [From TTO 24 Amendment, dated 24 January 2004] "The ADC compensates for the below cost rentals and the free calls provided to basic service (...). For other services such as cellular mobile and wireless in local loop with limited mobility (WLL-M) the access deficit charge was not applicable as the rentals and call charges in these segments cover costs as these tariffs have been left to market forces and have not been kept below cost by regulation." [From Consultation Paper on 1UC Review, 15 May 2003]
23. The new regulations of TRAI notified on 6.1.2005 [Telecommunication Interconnection Usage Charges (4th Amendment) Regulation, 2005] and which are to come into effect from 1.2.2005 have effected the following changes:
(i) Reduction in ADC values. For domestic calls, these have been reduced from current levels ranging from Rs. 0.30/minute, Rs. 0.50/minute and Rs. 0.80/ minute across various call types and distance slabs to a uniform Rs. 0.30/ minute. For international calls, ADC value has been reduced from Rs. 4.25/ minute for both incoming and outgoing calls to Rs. 2.50/minute for outgoing calls and Rs. 3.25/minute for incoming calls.
(ii) ADC on all incoming calls to private FSP's (fixed service providers) and MTNL will no longer be available.
(iii) For all intra-circle calls from cellular mobile/WLL-M to fixed line, the access deficit amount will be paid to BSNL *
(iv) For all incoming ILD calls to fixed line, BSNL* would be paid the ADC. (v) For all inter circle calls from cellular mobile /WLL-M to fixed line the ADC would be collected by the NLDO from the origination service provider and the ADC paid to BSNL*
(vi) *Earlier all fixed service providers {i.e., also MTNL) including terminating service providers, were getting the ADC amounts arising out of (iii),(iv) and (v) above.
24. MTNL has prayed for stay on implementation of the 6 January 2005 Amendment Regulations of TRAI which are to come into force on 1 February 2005, stating that the changes being brought about in the existing ADC regime are based on incomplete and defective data, the decision has been taken in undue haste as part of an interim review, it discriminates between one basic operator and others without any rational or nexus causing heavy depletion in ADC amount that would have accrued to MTNL had the regime not been changed, it proceeds on completely erroneous basis of 'exceptional growth' in the mobile subscriber base, which is totally irrelevant for the purposes of increase in outgoing calls in so far as the BSOs like MTNL are concerned, and it has arbitrarily been decided that ADC amounts on only outgoing calls would accrue to MTNL and the private fixed service providers completely ignoring that in the preceding 10 months, there has been no significant growth in the outgoing calls.
25. The appeal filed by MTNL along with application for stay was taken up for consideration by us on 24.1.2005. The Association of Unified Telecom Service Providers of India (AUSPI) which is an Association of private fixed line operators also sub-milled a petition asking for being intervenor in the case. TRAI was given opportunity to file their reply which they have done through what is stated as 'a brief reply, without prejudice to the respondents' right to file a detailed reply at a later date'.
26. All the points put across on behalf of MTNL and the intervenor (AUSPI) have been contested by TRAI in their reply. We have also heard extensive arguments of learned counsels in this regard.
27. The rationale and basis for the ADC regime notified in the 6 January 2005 Amendment Regulations is explained in the related notification, viz.--
"3. The exceptional growth in subscriber base has resulted in a substantial change in the situation that was considered for determining the ADC regime notified in the regulation of 29 October 2003. The large unanticipated increase in Mobile subscriber base has led to a much higher number of total minutes, which fund the overall ADC amount. Thus even with the same amount of ADC funds to be collected, the per minute ADC charge can be lower due to the increase in minutes on which the ADC charge is applied. Inter alia, taking this important factor into account, the Authority has conducted another review of ADC regime based on its Consultation Paper of 23 June 2004."
"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 itself will increasingly become a smaller portion. These major developments will give us with an additional basis to further decrease 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."
"9. In the present review, the Authority's assessment is based mainly in the increased minutes available to fund the ADC. The main focus of the ADC regime has been BSNL, and in the revised regime, the Authority has provided BSNL with the same ADC funds as were specified under the regime notified in the regulation. of 29 October 2003. However, even with the same amount of ADC funding, the per minute ADC charge would go down due to the larger base of subscribers and consequently, of the relevant minutes of use."
9 21 million in September 2003 to 46 million in November 2004.
"10. In reviewing the ADC regime, the Authority also examined the ADC regime that should apply to all fixed line service providers other than BSNL. The Authority recalled that even in the ADC regime notified in October 2003, these service providers were not treated at par with BSNL because under that regime only BSNL received the ADC from mobile to mobile calls and international calls to/from mobile. In the revised ADC regime too, the other fixed line service providers are not treated in the same manner as BSNL. The Authority feels that there is good basis for this dissimilar treatment, If it takes account of the lower cost of access involved with fixed line with wireless terminals, i.e. fixed line with radio link in the last mile and the spread of subscribers in urban and rural areas. (Table 3)"
"11. However, BSNL and other fixed service providers are being treated in a similar way by the Authority if we consider that in the revised scheme, the Authority is providing to BSNL the same overall amount of ADC as in the regime notified in October 2003 and all other fixed operators also, are being given overall similar ADC value as was specified in that Regulation."
TABLE 3 PERCENTAGE DISTRIBUTION OF FWT LINES IN THE TOTAL FIXED SubSCRIBER BASE OF FIXED OPERATORS AND PERCENTAGE OF RURAL LINES IN TOTAL FIXED LINES PROVIDED BY FIXED OPERATORS AS ON 30 SEPTEMBER 2004 Service Circle/Service Area % of fixed wireless provider % of rural line in operator's lines in operator's fixed lines lines fixed lines subscriber BSNL All India (except Delhi and 2.60 35.20 Mumbai) MTNL Delhi & Mumbai 1.09 0.00 Bharti Delhi, MP, Tamil Nadu, 3.46 0.08 Karnataka, Haryana, Chennai TATA Maharashtra, Mumbai, 77.39 0.23 Andhra Pradesh, Tamil Nadu, Chennai, Karnataka, Delhi, Gujarat Shyam Rajasthan 18.49 3.37 HFCL Punjab 24.53 0.45 Reliance All circles except Assam 97.27 0.66 and North East Total 7.70 28.93 "12. Based on the above, the Authority has decided that operators other than BSNL should be treated differently from BSNL in terms of the ADC support provided to them. In this background, and keeping also the objective of providing the same overall ADC funding to BSNL as in the estimation provided in the Regulation of 29 October 2003, the Authority has conducted further calculations and has decided that all the operators other than the BSNL should get ADC funding only from their outgoing calls. The ADC generated by all the incoming calls that were earlier provided to these (non-BSNL operators, would now be provided to BSNL. This is required to keep the incidence of the ADC charge low, to make ADC regime sustainable, and to obtain the requisite funds for the ADC being provided to the operator who is presently providing virtually the entire rural telephony."
28. In regard to the charge of discriminatory treatment being given vis-a-vis BSNL to the other fixed line operators TRAI has further stated as under:
"39. The Authority recalled that BSNL and the other fixed line operators were not treated in the same way even under the existing ADC regime notified in the Regulation of 29 October 2003. In the existing regime, therefore, all the ADC arising from mobile/WLL-M to mobile/WLL-M calls, as well as from international calls to or from mobile/WLL-M, was being given only to BSNL. The other fixed line operators did not receive any ADC from these calls."
"40. However, if we consider the Authority's decision that in the revised ADC regime, BSNL and the rest of fixed line operators will respectively get the same ADC amounts as specified for the existing ADC regime, both BSNL and the other operators are being treated similarly. The Authority also noted that with the same ADC amount to be funded and the minutes of use having gone, the ADC charge per minute can be reduced."
"41. The issue of whether the ADC regime applicable for BSNL and other fixed line operators should be the same can also be seen in terms of two important criteria., namely the distribution of subscriber base for which access deficit would arise, and second the distribution of subscribers in urban and rural areas. As shown by Table 3 given earlier in this Explanatory Memorandum, the position of BSNL, and the other line operators is very different when they are compared on the basis of these criteria."
"42. The first criteria is linked to the fact the ADC funds have provided to fixed line service providers to cover the shortfall in revenue for access (i.e. the deficit). And in a situation of incomplete tariff re-balancing, sustain the service even with intense competition in the long distance market. The Authority recalled in this context that either due to the Regulator of the Government, an upper limit was imposed on the fixed line rental charged by BSNL, and the other fixed line service providers were also constrained since BSNL has been the market leader in this regard. Consequently, an access deficit arises because the revenues from rental charged are much below the cost based rental, with the latter being calculated based on the capital cost for the local portion of the network (please see the regulations of 24 January and 29 October 2003 for more details). A major portion, i.e., about three-fifths of the cost base for estimating the cost based rental is accounted for by the capital expenditure in the last, mile portion of the network.
Thus, when fixed line service providers give last mile connections through radio, there is a major decrease in the capital costs for the last mile, and hence in the overall costs used to calculate the cost based rental. In this regard, the Authority does not agree with the point that consumer equipment cost should be included for estimating overall access deficit."
"43. The second criteria is linked to provision of rural services, and the likely average monthly rental revenue received by various operators. Table 3 also shows the relative presence of the subscriber base of various operators in rural and urban areas, and its evident that compared to BSNL, the other operators are based in relatively lucrative areas. This also implies relatively higher monthly rentals and even ARPUs, for the other fixed line operators compared to BSNL."
"44. Based on the above, the Authority has decided that operators other than BSNL should continue to be treated differently from BSNL in terms of the ADC regime applicable to them. This implies preferential treatment in terms of ADC funds for the operator who is presently providing virtually the entire rural telephony.
"45. In this background, and keeping also the objective of providing the same overall ADC funding to. BSNL as in the estimation provided in the Regulation of 29 October 2003, the Authority has conducted further calculations, and has decided all the operators other than BSNL should get ADC funding only from their outgoing calls. The ADC generated by all the incoming calls that earlier provide them with the ADC funding, would now be provided to BSNL. The calculation of the Authority show that such a regime would be more than adequate to provide the other fixed line operators with the relevant ADC funds."
29. In a pointed query at the time of arguments, it was pointed out on behalf of TRAI that in Table XXII annexed with Amendment Notification of 6.1.2005 the ADC based on outgoing calls was estimated to be Rs. 715 crores (without the changes in ADC rates) for the period February 2005 to January 2006. MTNL has stated in its appeal that it expects about Rs. 384 crores ADC under the new arrangements. This goes to show that revised ADC regime could provide around Rs. 550 crores to the other fixed line operators including MTNL, as was the stipulation when the regulations of 29.10.2003 was notified.
30. On the constraints regarding data, TRAI has stated that it started the exercise of data gathering in March 2004. MTNL continued to give inaccurate and incomplete information. The amendment Notification further mentions as follows:
"83. For its ADC review, the Authority had asked service providers to give relevant data covering ADC collection and traffic minutes along with distribution into various distance slabs covering intra and inter circle, the overall subscriber base and revenues/costs. Data was collected for the period February to September 2004, i.e., the first eight months for which the ADC regime notified in October 2003 has been in place. Traffic data and subscriber data was available for fixed as well as mobile services corresponding for the following six categories covering a period of eight months:
(a) Traffic minutes with no ADC;
(b) Traffic minutes with ADC (intra circle);
(c) Inter circle (distance upto 50 Kms) traffic minutes;
(d) Inter circle (distance slab 50 to 200 kms) traffic minutes;
(e) Inter circle (distance 200 + kms) traffic minutes;
(f) International long distance.
"84. The Authority has also sought information under section 12 of the Act to obtain authentic data quickly. The Authority has been provided substantial data, but there have been gaps and even inconsistent data in certain cases. It was noted that for international call traffic, the data provided by ILDOs to DOT was comparable to that provided by them to TRAI. In a number of cases, the problems with the data were pointed to service providers in order to get better data. The response of MTNL was far from satisfactory. Many of the traffic streams contributing towards ADC were shown with data not available or with abnormally low. MTNL in its communication dated 3 December has stated that--
' (...) Data can be supplied in the prescribed format only after completion of CRD based billing, which is likely to be completed by January 2005'."
"BSNL was also not able to provide data as per TRAI requirements since the data submitted from different operators was collected separately. It was necessary to examine the information for consistency including with respect to outgoing/ incoming minutes and the estimates of ADC based on these minutes. The Authority could have tried to get more detailed data through recourse to legal action against the operators, but this process would have resulted in more delay in the finalisation of new ADC regime and would have denied the consumers the advantage of lower tariffs as a result of reduction in ADC charges for National and International long distance service. The Authority has weighed the different options and reached the conclusion that it has adequate basis to take the decision notified here."
"85. In situations where adequate information was not provided by the service provider, the Authority has applied the well known technique of using normated data, using reasonable checks to consider that the results are robust. Normated data estimates are used both to ensure that there is no regulatory capture by the service providers in terms of misleading the regulatory body by delaying data or giving data without proper examinations, and that the framework for data collection included an incentive to service providers to take the requisite steps in a timely manner. Such a practice also involves a reasonable presumption that if the service provider is not giving certain information, especially, if it has submitted similar information earlier in some other context then its deliberately trying to affect the results to be in its own favour by not providing data. The Regulator had informed all the service providers on 23 December 2003 to re-examine their data on traffic and ADC furnished on monthly basis from February 2004 onwards and make necessary corrections, if any, or explain the consistencies of their traffic vis-a-vis ADC data. TRAI had further stated that in case correct and reconciled data is not received, the Authority would be constrained to use normated data, which may be to the disadvantage of the operators. The regulator has to resort to normation in such cases, and the estimate used in the regulatory exercise may be one which is to the disadvantage of the operator so that it does not have an incentive not to hide its information in the future. If such a policy is not adopted, the regulatory policy can be easily hijacked by the service providers and the regulatory progress can be hindered immensely."
31. TRAI has thus explained in detail the rationale and methodology adopted for making their calculations on the basis of the available data.
32. For the purpose of deciding the question of interim relief/stay, as prayed for by the appellant and the intervener, we have looked into the documents submitted to us by MTNL and TRAI. We propose to only consider whether in the light of the material submitted before us, there is any justification for any relief/stay. Primae facie, it does not appear that the decisions of TRAI reflected in the above regulations have been taken in haste or show lack of application of mind. TRAI is an expert body and from the detailed Consultation Papers and even from the detailed notification dated 6.1.2005 it is prima facie clear that TRAI has tried to ensure that the consumer does not continue to be burdened by the access deficit charge beyond what is actually necessary. At several places, TRAI has clarified that the same overall amount of ADC as in the regime notified in October 2003 (which was accepted by the Industry) is being provided to BSNL and all other fixed operators also, including MTNL, are being given overall similar ADC values as was specified in that regulation.
33. Lastly, we have to see whether balance of convenience is in favour of staying the implementation of the regime which will come into effect from 1.2.2005. The immediate impact of the TRAI notification is the benefit expected for millions of telecom users by way of reduction in the ADC charges under the new regime. At the same time, the ADC amounts that would accrue to BSNL, MTNL and the basic service operators are stated to be at the same levels to which they were entitled to under the existing ADC regime, viz., of October 2003 (which became effective on 1.2.2004). Grant of slay would, therefore, deprive millions of telecom users of a benefit of reduction in tariffs which is expected to be immediately made available to them. This would appear to be unjustified and their losses may be irreversible and irreparable. We note that certain streams of ADC amounts which were earlier available to the BSOs and MTNL have now been made payable to BSNL. This is a matter which can be gone into and is capable of being redressed adequately even at a later point of time.
34. Accordingly, in our view, there are no sound reasons for grant 'of stay as prayed for, during the pendency of the appeal, and when pleadings are still not complete and the matter is yet to be heard in full detail.