Top telecom operators such as Bharti Airtel, Idea Cellular and Vodafone India will face drop in profit if India government implements 57 percent cut in mobile termination or interconnection charges to 6 paisa per minute from 14 paisa.
Tanu Sharma, associate director, Corporates at India Ratings and Research, earlier said the new cut in interconnection charge would hit the EBITDA margins of telecoms where incoming calls from other networks are more than outgoing calls to other networks.
Reliance Jio has demanded zero termination charges. The chart prepared by GSMA shows the revenue drop of Indian telecom operators.
Airtel says the new interconnection rate only benefit Jio
Indian telecom operator Airtel said the new interconnection rate announced by TRAI (Telecom Regulatory Authority of India) only benefit Reliance Jio.
The statement from Airtel did not mention Reliance Jio.
Airtel in a statement said: “We are disappointed with the latest regulation on the IUC, especially at a time when the telecom industry is facing severe financial stress. 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.”
Airtel said the sharp drop in the IUC rate will only help transfer part of its cost to other operators, thereby further worsening the financial health of the industry. “As part of an industry, which continues to be a critical driving force behind the economic growth in the country, we are genuinely dismayed by this decision,” Airtel said.
Reliance Communications welcomes
Reliance Communications said it welcomed the reduction in IUC to 6 paisa and the B&K model which will be effective from January 2020. The IUC cut has already been delayed by three years. With voice calling becoming free, TRAI’s move will provide a level playing field.
Bharti Airtel, Vodafone and Idea argued against the reduction claiming that 14 paisa per minute is below the cost of carrying incoming calls and rather claimed an increase in IUC. IUC is the charge paid by telecoms for the calls originating from their network and terminating on other networks.
Vodafone rejects
Vodafone said it is disappointed with this decision of TRAI. Vodafone is now considering its options in response to it. The Indian telecoms industry is experiencing the greatest period of financial stress in its history. “This is yet another retrograde regulatory measure that, unless mitigated, will have serious consequences for investment in rural coverage,” Vodafone said.
Earlier, Vodafone Group CEO Vittorio Colao urged the Indian government not to reduce mobile termination charges (MTC) further.
“On mobile termination charges, we are alarmed to see reports that the Regulator is considering a reduction in MTC at a time when the industry is facing such immense hardships. Any reduction in MTC risks large scale site shut-down of already unprofitable sites in rural India,” Colao said in a letter dated August 22.
Idea Cellular opposes
Idea Cellular said cost based determination of IUC, which adequately compensate network operators terminating voice traffic, is a well-established settlement principle. TRAI’s verdict to cut IUC to 6 paisa per minute, determined on the basis of a new cost methodology (Pure LRIC model) which ignores the high prices paid for the spectrum, compromises this principle, and will negatively impact the already stressed financial health of the sector.
COAI on IUC
Cellular Operators’ Association of India’s Director General Rajan S Mathews said majority of telecom operators will seek legal redressal against TRAI’s slashing mobile termination charges to 6 paisa per minute from 14 paisa.
“This is a disastrous tariff order. We have indicated earlier that the regulator has to be transparent about how it is arriving at a number. This massive reduction is disastrous for the financial health of the sector,” Mathews said.
Mathews also said that customers will not be benefitted from this. TRAI said the decision will benefit India’s one billion plus wireless users across India.
TRAI further said it will phase out mobile termination charges by January 1, 2020.
The Indian telecom regulator on Tuesday came out with a regulation where it has more than halved the call termination charges from mobile to mobile to 6 paise per minute effective from October 1, 2017.
TRAI said wireline to mobile and wireline to wireline termination charge would continue to remain zero.
The TRAI decision on interconnection would be another blow to Vodafone and Idea Cellular after both reporting subscriber loss in most top circles in July 2017.
Idea Cellular said a large base of rural sites are predominantly utilized for receiving incoming calls, and even in the erstwhile IUC regime were being subsidized by existing operators. The revised IUC rate jeopardizes both rural coverage and connectivity.
Further, in an environment of tenfold induced traffic asymmetry, this is a regulation driven cross-subsidy among competing operators whereby one operator is passing the burden of terminating its voice traffic on to other operators.
With the drastic reduction in the prevailing IUC, and the proposed migration to a BAK (Bill And Keep) regime from 2020, the mobile telecom sector will 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.
BAK and CPP (Calling Party Pays) are logically antithetical, that is why no regulator in the world combines them. TRAI has not provided any economic rationale to justify how an already ‘lowest in the world’ IUC rate of 14 paisa per minute, has been further lowered by nearly 60 percent.
The European average settlement rate of 1.27 eurocents per minute (approx. 98 paisa per minute) is more than 16 times higher than the prescribed IUC rate of 6 paisa per minute in India.
All voice traffic in India is terminated on two types of networks – TDM based networks using 2G / 3G / 4G (non-VoLTE) technology, currently terminating over 95 percent of voice traffic, and VoLTE based 4G voice networks, currently terminating less than 5 percent of voice traffic.
