New Delhi: In a move that will trigger lower phone call charges, India's telecom regulator Thursday said it will remove a levy imposed on service providers to fund rural connectivity.

"Access deficit charges put unfair burden on new entrants and distorts market conditions," the Telecom Regulatory Authority of India (TRAI) said, referring to the technical term used for the levy, imposed since 2003.

"It is also a source of arbitrage and thereby results in grey market operations in the international calls," the watchdog said in a statement, after taking the views all stakeholders since January.

It accordingly said domestic calls will be freed from the levy - paid to state-run Bharat Sanchar Nigam Ltd (BSNL) - from April, while international calls will be freed from September.

In the interim, it said the levy on the international calls has been reduced to just 50 paise (little over one US cent) from Rs.1 per call.

The watchdog also called for the government to pay an annual subsidy of Rs.20 billion ($500 million) for three years to BSNL for phones installed by it in rural areas before April 1, 2002.