If you are in the US and want to have a long chat with your friends or relatives back home, all you have to do is to buy international calling cards which offer international long distance calls to India at rock bottom prices -- ranging from a cent (43 paisa) to six cents (Rs 2.58) a minute.

Click on any of the search engines for an Indian calling card and you'll be bombarded with the Internet addresses of more than one lakh sites that offer international calling cards.

These cards are a boon for those in the US who want to call India, but are a serious threat to India's fledgling international long distance companies.

According to industry estimates, ILD operators are losing anywhere between Rs 1,500 crore and Rs 2,000 crore (Rs 15-20 billion) in revenue a year to what are called grey market operators. These fly-by-night operators across the country terminate international calls here illegally without paying the government charges, something established ILD operators have to.

The grey market onslaught is already beginning to hurt. Says Badri Aggarwal, president at Bharti Infotel, which runs the Bharti group's ILD business: "As much as 25 per cent of the international incoming calls are grey. There is incentive for people to break the law. It's the same story in ILD."

Others think that the figures are even higher. Points out a senior Videsh Sanchar Nigam Ltd [Get Quote] executive: "According to our estimate, grey market calls comprise 30 per cent to 40 per cent of the total incoming international call market."

What is causing concern is the fact that the grey market disease has spread to smaller towns and cities -- in the US, calling cards are now available if you want to talk to someone in places like Rajkot, Warangal. Anand, Kancheepuram, Guntur and Madurai, for example.

ILD companies and international phone call carriers squarely blame the Telelcom Regulatory Authority of India for this. They claim that TRAI is refusing to investigate the nature of the grey market. Member of Parliament Nilotpal Basu, in fact, has openly demanded the removal of TRAI chairman Pradip Baijal for his inaction on the issue.

In a scathing attack on TRAI, Basu says: "The TRAI is indulging in purposeful inaction and facilitating grey market operations. It has made no attempt to investigate the matter. However, it is the only body which has the power to collect and demand the data required to understand how big the illegal operation is."

ILD companies allege that, by keeping access deficit charges -- the money which is collected and given to the state-owned Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd [Get Quote] to subsidise their local call tariffs -- high for them and failing to put an enforcement mechanism in place, TRAI has virtually allowed grey market operations to continue.

Charges a senior executive of an international carrier: "Despite acknowledging in numerous reports that a large arbitrage opportunity is available, TRAI has stuck to a high access deficit regime which has benefited only grey operators. And it continues to take measures which, wily nilly, assist them."

Allegations have also been levelled that TRAI has adopted a selective approach -- it is, for instance, accused of having quietly sat on complaints against Reliance [Get Quote] Infocomm, which came under the scanner for rerouting international calls as local calls.

"Despite multiple complaints by BSNL, TRAI failed to send out even a show cause notice to Reliance Infocomm, leave alone instituting an investigation according to the law," says a senior executive at an ILD company.

TRAI is also accused of increasing arbitrage opportunities. Last month, it cut international bandwidth prices by 35 per cent to 70 per cent. "It has made it cheaper for grey market operators who use leased lines and helped them to improve their margins," exclaims an executive at an international call carrier company.

The government too is losing over Rs 300 crore (Rs 3 billion) it would have earned as revenue share from ILD operators. State-owned telecom companies like Bharat Sanchar Nigam Ltd are losing access deficit charges just because calls are getting diverted to the grey market.

On its part, TRAI points out that as a regulator it has to do a tightrope act. It has to ensure that the incumbents get enough ADC so that they can subsidise local calls, and it has to reduce the arbitrage opportunities so that grey market operators have no incentive to operate.

Says TRAI chairman Pradip Baijal: " When the duty on gold was high, there was an incentive to smuggle. But duties were slowly brought down. The same is the case with ILD ADC and we hope to move to a revenue share model."

That is, instead of paying ADC per minute, telecom companies will pay the government a share of their revenue.

Says a TRAI member: "We could move to a revenue share regime this year itself. We expect the telecom industry's revenue to go up from Rs 60,000 crore (Rs 600 billion) to Rs 80,000 crore (Rs 800 billion) this year. So the burden will come down in any case. Secondly, we expect disbursements from the Universal Service Obligation fund of Rs 3,000 crore to the department of telecommunications to improve further. This is used for rural telephony (one component of the ADC also), giving us a cushion."

TRAI also denies that it is investigating complaints selectively. "In the case of Reliance, it was a dispute between two companies. Once there is a dispute, our power to investigate under the TDSAT judgment also vanishes." says a TRAI official.

And by intervening, TRAI would have got into protracted litigation, which would have been counter productive.

TRAI officials also underscore the fact that the number of incoming minutes via the legal route has increased by 46 per cent in 2004-2005 versus the previous year -- evidence that the stringent action taken by the department of telecommunications and other policing bodies is actually working.

The whole matter is complicated but boils down to this. ILD operators that terminate incoming international calls and route them to your homes have to pay charges.

Among them are ADC to BSNL (Rs 3.25 per minute), a termination charge to the local operator that "owns" the customer where the call ends (30 paisa) and a small transit charge for taking the call from the international gateway to the customer's premise (20 paisa), making up a total of Rs 3.75. Apart from this, the ILD company has to incur infrastructure costs for building and maintaining its ILD operations.

The government and TRAI have kept ADC charges for ILD and NLD high as the money collected is given to BSNL to subsidise its local call rates. ADC charges have been coming down but are still far too high, ILD companies say.

International carriers offer call minutes to Indian ILD companies and pay them anything between Rs 5.50 and Rs 6.50 a minute to carry these calls to their destinations in India. That forms the revenue for an Indian ILD company. The difference between the revenue and the ADC provides them with their margin.

Grey market operators, however bypass the legal route by not paying ADC. They tie up with resellers of minutes in the US (who sell calling cards).

Also, established carriers pick up international minutes, use their own leased lines and then terminate the calls on a fixed or mobile network in the country as a local call, bypassing the international gateway. The resellers pay them low rates for carrying calls (Rs 1 to Rs 1.50). That is fine with grey operators as their owns costs without ADC are rock bottom.

The problem is aggravated by the fact that it is difficult to trace illegal calls. That is because most of these calls do not show a caller line identification. So you cannot trace them if they are international calls. And as much as 70 per cent of international calls terminate in fixed phones that don't have CLI.

Bharti Infotel's Aggarwal contends that the nub of the matter is the high ADC fixed by TRAI, which provides arbitrage opportunities to grey market operators. "The only answer is to remove the ADC and move to a revenue share regime so that there is no incentive left for grey operators at all," says Aggarwal.

Secondly, ILD companies argue that while TRAI reduced the ADC from Rs 4.75 to Rs 3.25 a minute this year, the arbitrage margins for grey market operators were not narrowed. That is because Indian ILD companies did not pass on the reduction by way of cuts in what they charge international carriers (around Rs 5.50 a minute).

"It is pretty clear that the cut in ADC has not changed the arbitrage margins at all, and TRAI had done nothing to ensure that the cut in ADC is passed on," says a harried executive at an international carrier.

ILD company executives like Aggarwal defend their decision not to pass on the benefit of the ADC reduction.

Says he: "Yes, we have not passed it on, because earlier we were making losses of 30 paisa to 40 paisa per minute. The reduction in ADC by Rs 1 has given us some cushion to make some margins." But Aggarwal says that if the ADC is removed Bharti Infotel will pass on the reduction to international carriers.

Still, TRAI says that incoming ILD calls contributed over Rs 1,300 crore (Rs 13 billion) to the ADC. If ILD companies want to switch from ADC to a revenue share model, they will have to fork out over 30 per cent of their Rs 5,000 crore (Rs 50 billion) revenue {Rs 1,500 crore (Rs 15 billion)} as revenue share.

TRAI officials also agree that leased lines are used by grey market operators but say that the IT industry in particular has been seeking a reduction in leased line rates. Says a TRAI member: "Our studies clearly showed that the international bandwidth was more expensive than in other countries."