The Telecom Regulatory Authority of India (Trai) has slashed the mobile call connection charge by more than half to 6 paise a minute and said no rate will apply from January 1, 2020, a move that may benefit newcomer Reliance Jio. Mobile companies charged 14 paise a minute for allowing a domestic call from a rival operator to terminate on their network.
This charge, called Interconnection Usage Charge or IUC, has become 6 paise per minute from October 1, 2017, Trai said in a statement. The regulator had further said no such charge would apply from January 1, 2020. Mobile tariffs will fall if the operators pass on the benefit of reduced IUC charge to customers. Terming the move as “disastrous”, COAI Director-General Rajan Mathews said there are preliminary indications that most of its members will go to court on the issue. Trai — which held an intensive consultation with the industry before finalising the charge — said there will be no interconnect rate from January 1, 2020.
The regulator further said that for other types of calls — landline-to-mobile, landline-to-landline — the termination charges will continue to remain zero. Established telecom operators have argued that every call on the network has a cost, and expenses of an incoming call on their network should be borne by the operator from whose network, the call has originated. Trai asked “why telecom operators are not migrating to newer technologies” when clear demonstrable large differences exist in the cost of providing same services.
“The authority is of the view that in case the present regime of cost-based domestic termination charge is continued for long, it would hamper the movement of the sector towards deployment of more efficient technologies and more innovative and customer-friendly tariff offerings and, in turn, it would be detrimental to the growth,” the watchdog stated. It felt that two years will be “appropriate” for telcos to migrate to new technologies.
Trai, in an affidavit filed before the Supreme Court in 2011, had said telecom operators should be given time till 2014 to move to the ‘Bill and Keep regime’. Under this, operators only keep record of incoming calls on their network, but do not raise any demand from other operators. Jio had alleged that continuation of IUC beyond 2014 had resulted in older operators benefiting to the tune of Rs 1 lakh crore.
The established operators such as Bharti Airtel and Vodafone have contended that telecom infrastructure in rural areas largely depends on revenue from incoming calls, and lowering or removal of such charge will hamper services. They have been demanding that mobile call connection charge should be set in the range of 32-36 paise per minute. Airtel has claimed that it has suffered loss of Rs 6,800 crore due to lower IUC of 14 paise set by the regulator in the last five years. Rival Jio dubbed those claims as “misleading”.
The IUC debate has seen Members of Parliament participating in person during the open house discussion organised by the regulator and all the members called for abolition of the charge. At present, Reliance Jio offers entire phone call service using VoLTE technology. Airtel has just started VoLTE-based calls and plans to expand it to across India by the end of the current fiscal. VoLTE (Voice over Long-Term Evolution) is high-end and latest version of calls that are made on Internet-based networks. Idea Cellular has written to Trai to separately calculate call connection charges for traditional network and VoLTE (voice over 4G) network as their is a huge difference on calls carried among the two networks.
According to back-of-the-envelope calculation by the industry, the IUC coming down to 6 paise could translate into savings of over Rs 5,000 crore for Jio while Airtel, Vodafone and Idea could stand to lose between Rs 1,200-2,000 crore. Former CEO of Bharti Airtel Sanjay Kapoor said the entire pricing mechanism in India is not sustainable, given the decline in profit of telecom operators, low tariffs and high spectrum cost. “Reduction in IUC adds to the pain. By changing technology, one can lower the cost, but the raw material spectrum is still expensive. Industry, given its current financial position, is not left with enough money to invest,” Kapoor added. The telecom industry has approached the government for relief as it is reeling under debt of around Rs 4.6 lakh crore and the tariff war has eroded their earnings.
COAI Trai’s decision to cut call connection charge rate by more than half will hit earnings of old mobile operators to the tune of Rs 5,000 crore in the current fiscal, industry body COAI said. Rajan S Mathews, Director General, Cellular Operators Association of India (COAI), in an interview to PTI demanded that Trai should explain the calculation model it had used to arrive at the figure of 6 paise for the interconnection usage charge, which will be effective October 1. Mathews contended that the assumption of the Telecom Regulatory Authority of India (Trai) that all operators should move towards VoLTE technology is not practical as it will hit services for 2G users who account for 70 per cent of the total subscriber base in the country. “In the last financial year, industry revenue from IUC at 14 paise was around Rs 10,000 crore.
At 6 paise, we expect it to decline to Rs 5,000 crore,” Mathews added. VoLTE (Voice over Long-Term Evolution) is high-end and latest version of calls that are made on Internet-based networks. “Technology migration sounds good, but we have to look at practical dimensions of what happens in terms of incumbents. They don’t have the same profile as Jio does. Jio can start with all 4G calls, but incumbents are forced to bear the cost of carrying their legacy,” Mathews pointed out. He said that in 2010 when spectrum was auctioned, the government had defined the service for which it has to be used and based on those requirements, Jio was bound to build a data network. But operators who purchased 3G at high price had to use other technologies.
At present, Reliance Jio offers entire phone call service using the VoLTE technology. Airtel has just started VoLTE-based calls and plans to expand it across India by the end of the current fiscal. All operators, Mathews said, want to move to 4G network, but they cannot force customers using 2G services to move to 4G as most of them cannot afford 4G handsets. “What am I going to do with 2G subscribers that I have had till 2014. They don’t have a smartphone. They only have feature phone. If VoLTE calls come for delivery on 2G network, how am I going to deliver that call? VoLTE to 2G is not possible unless you do what Trai did for broadcasting,” Mathews reasoned.
Trai had mandated installation of digital set-top-boxes for watching cable television. He said JioPhone is also not affordable for many because of the deposit being charged to them. People can get JioPhone by paying Rs 1,500 as deposit, which will be refunded to them after 36 months. “No body (2G customers) is willing to pay big amount upfront. Around 43 per cent of all top-ups are of Rs 10. Nobody is even willing to pay Rs 150 upfront,” Mathews said. He is of the view that if telecom operators start selling bundled handsets, they will have to pay licence fees and spectrum usage charge also on the price of phone.
Airtel said the move would adversely affect the rest of the industry. “The suggested IUC rate, which has been arrived at in a completely non-transparent fashion, benefits only one operator which enjoys a huge traffic asymmetry in its favour”. Expressing disappointment at the new regulations, Airtel said the industry is facing severe financial stress and the cut in IUC will “further worsen” the situation.
Idea Cellular said the decision is a body blow to the segment and “riddled with egregious infirmities” and will jeopardise both rural coverage and connectivity.
Demanding withdrawal of the decision, Idea called the decision as regulation driven cross subsidy among competing operators. “The proposed reduction by the Trai in the Mobile Termination Charge (MTC) is a body blow to all operators who depend upon fair, equitable, and transparent regulation to encourage and sustain reinvestment in the sector. The decision is riddled with egregious infirmities,” Idea said in a statement. Established telecom operators have argued that every call on the network has a cost, and expenses of an incoming call on their network should be borne by the operator from whose network the call has originated. Trai has asked “why telecom operators are not migrating to newer technologies such as VoLTE (Voice over Long-Term Evolution)” when clear demonstrable large differences exist in the cost of providing same services. “In an avowedly technology neutral policy regime, a regulation which should acknowledge both subscriber handsets ownership and incoming calling patterns has, instead, erroneously determined that only one technology benefits. Presently, more than 900 million consumers in India rely on established 2G, 3G, 4G (non-VoLTE) networks for accessing voice services,” the statement said.
It claimed that a majority of the users are located in the rural area, and are dependent on the mobile telecom infrastructure investments to stay connected. “A large swathe of these rural sites are predominantly utilised for receiving incoming calls, and even in the erstwhile IUC regime were being subsidised by existing operators. The revised IUC rate further jeopardises both rural coverage and connectivity,” Idea said. The Aditya Birla group firm said that the drastic reduction in the prevailing IUC, and the proposed migration to a BAK (Bill And Keep) regime from 2020, the mobile telecom sector may very well be further exposed to the “claws of predatory and anti-competitive pricing tactics, disturbing the long term competition structure of the industry to a near monopoly”.
Though the regulator has explained the methodology used to arrive at 6 paise per minute cost, Idea alleged that no economic rationale has been provided to justify “how an already lowest in the world IUC rate of 14 paise per minute, has been further lowered by nearly 60 per cent”. “No thought has been spared as to how Indian regulation can possibly arrive at starkly dissimilar answers to similar calculations as in the rest of the world, including the quoted European average settlement rate of 1.27 euro cents per minute (approximately 98 paise per minute), more than 16 times higher than the prescribed IUC rate of 6 paise per minute in India,” Idea said.
India’s second largest operator Vodafone expressed dismay at the telecom regulator’s decision to cut mobile call connect charges and termed the move as a “retrograde” measure. “This is yet another retrograde regulatory measure that, unless mitigated, will have serious consequences for investment in rural coverage, undermining the government’s vision of Digital India,” Vodafone said in a statement. Slamming the latest decision of Telecom Regulatory Authority of India (TRAI), Vodafone said the Indian telecom industry was already experiencing the “greatest period of financial stress in its history”. “We are disappointed with this decision and are now considering our options in response to it,” the company said but did not specify its options.
Trai Chairman R S Sharma dismissed charges of non-transparency in its decision to cut call connect rate, saying the cost calculation is objective and scientific and there is no question of “helping or harming” any operator. Speaking to PTI, Sharma said the IUC charge finalised by Trai was driven by considerations of consumer and industry interest, competition and march of technology. Sharma maintained that Trai had gone purely by the cost calculations, backed by data and models and had no discretion in the matter. “We have no authority to change the costs. Where is the question of helping or harming someone?” he asked. He said Trai has, in fact, been “conservative” in its approach on setting a 2020 deadline for phasing out the charge. “In case there are changes in the entire scheme of things and it has to be reviewed, we have right to look at it one year from implementation. We will keep a close watch on developments of new technology,” he pointed out.
Sharma refused to comment on the possibility of older operators approaching courts on the IUC rate cut, saying in a free country, people have the right to approach legal forums. “It is a free country and there is democracy. Everyone has right to approach legal forum. I have no comment to offer,” he said. Rejecting allegations by Bharti Airtel and Vodafone that the rate cut favoured one operator in particular, Sharma emphasised that the exercise was only about computation of costs based on the work done by a network.
The detailed methodology on which Trai’s calculations are based is part of the explanatory memorandum to the regulations all of which have been placed in the public domain now, he added. “It is not as if Trai has utilised a discretionary power. There is detailed computation for public view,” Sharma said. Sharma added that Trai has adopted a rigorous process in arriving at the new IUC charge and noted that the consultations had spanned 13 months encompassing open house, comments and countercomments from the industry. “The cost particulars have been taken from submission of service providers to Trai.
There is a detailed explanatory memorandum running into 62 pages and Annexure giving the methodology of calculation of termination charge. The computation has been done in a scientific and objective manner,” the Trai chief asserted.
Reliance Jio rubbished charges that it stood to gain from the cut in call connect rates, saying cost of voice calls had slid to a fraction of a paisa and customers should enjoy the advantage. Jio said that it is “appalling” that incumbent operators have made baseless allegations against the process for determination of interconnection usage charges (IUC) and regulator Trai. “There is no question of any advantage from the new IUC regulation to Jio as it has already passed on all the benefits to customers. We deny any benefits to Jio.” It also charged the incumbent operators of having a history of opposing all the IUC regulations over the last eight years, but not being successful in “thwarting” the passage of benefits (of lower IUC) to customers.
“At a time when the world is moving towards IP-based technologies, cost of voice has come down to a fraction of a paisa and the customers should enjoy this advantage,” Jio said. The company said the argument on financial stress or the need of IUC for promoting rural coverage actually revealed the mindset of incumbent operators of treating the said charge as a subsidy. “References to financial stress in the industry or the need for IUC to promote rural coverage again shows the attitude of the incumbent operators wherein IUC is being treated as a subsidy that the Indian customers must pay to sustain these operators financially,” Jio said.
It also said the country needed technology and tariff innovations and affordable services for customers and that ‘Bill and Keep’ regime will “accelerate” these goals. “It should have been implemented in 2014 as envisaged in the 2011 report submitted by TRAI to the Supreme Court, and will be six years too late,” the Jio statement said. The “high cost” IUC regime thus far has caused financial stress for the smaller and new operators, it claimed. The Mukesh Ambani-led company further said technology is driving global growth opportunities and a forward-looking regulatory regime will contribute in achieving the vision of Digital India. “Jio is committed to implementing the most efficient telecom network in India and passing on the benefits of technology to Indian customers,” it said.
Reliance Communications came out in support of telecom regulator’s decision to cut the call connect charges, saying the move will provide a “level-playing field” with voice calls becoming free. In a statement, Anil Ambani-controlled Reliance Communications said that IUC cut has already been delayed by three years. “With voice calling becoming free, Trai’s move will provide a level-playing field,” the company said. RCom said it welcomed the reduction in IUC to six paise, and also supported the Bill and Keep model, to be effective from January 2020. Under Bill and Keep regime, the operators only keep record of incoming calls on their network, but do not raise any demand from other operators.