New Delhi: India’s telecom regulator is looking to reduce a fee charged by telcos from other telcos—a move that could dent their profits even as it reduces tariffs for customers.
The fee, the so-called termination charge, is currently capped at 30 paise a minute and is paid by telcos terminating or landing calls onto the networks of other telcos.
The move by the Telecom Regulatory Authority of India (Trai) has been triggered by a tariff scheme announced by Virgin Mobile India, which offers customers here 10 paise for each incoming call-minute. The Virgin service was launched in partnership with Tata Teleservices Ltd.
The proposed step could dent service providers’ profits even as it lowers tariffs for customers (Picture by: Rajeev Dabral / Mint)
“We are examining this issue, with Virgin Mobile’s offer to its potential customers being the starting point,” said a senior Trai official who requested anonymity because he is not authorized to give media interviews.
“We believe there could be further scope for lowering the current termination charges.” The official declined to further elaborate as to by how much could these charges be reduced, saying it was too early to predict.
Trai’s logic is that if Virgin Mobile is paying customers for incoming calls, then the call termination charges it receives may be adequate to cover its costs and the 10 paise it gives customers.
When contacted, a senior official at Virgin Mobile told Mint on Wednesday that the 10 paise incoming offer was “not a short-term promotional offer in order to acquire customers, but a long-term strategy based on cost.”
The rationale behind a termination charge is to compensate a network for the cost of receiving a call because under the “calling party pays”’ regime that India follows, there are no charges levied on customers receiving a call, unlike in markets such as the US, where customers mostly have to pay to even receive a call. So, if a Reliance Communications Ltd, or RCom customer calls a Bharti Airtel Ltd customer, RCom will have to pay Bharti Airtel 30 paise for every minute of the call.
“The idea is to have a cost-based mechanism,” added the Trai official.
Mobile phone companies such as Bharti Airtel, India’s biggest mobile phone services firm by customers, which reported around 108 billion minutes of calls last quarter, make an estimated Rs1,200 crore every quarter through call termination charges alone.
Yogesh Kirve, analyst at Anand Rathi Securities Ltd said Indian mobile phone firms could be earning around Rs4,500 crore every quarter from termination charges. “If you take 400 billion minutes of calls every quarter, at least half of that will be incoming calls amounting to almost 200 billion minutes,” he added. While termination charges come to be around Rs6,000 crore on this assumption, Kirve added that a quarter of that amount could be on account of calls terminating at an operators’ own network.
“Some of these calls could be between their own subscribers, say, an Airtel customer calling another Airtel customer,” he said. It was not immediately possible to estimate such revenues for fixed line phone firms.
A telecom representative opposed the Trai move and instead asked for a hike in the call termination charges.
“Existing mobile termination charges in India are already much lower than markets such as Pakistan and Malaysia, which have similar cost structures,” argued T.V. Ramachandran, director general of Cellular Operators’ Association of India, a lobby of Indian mobile phone service firms. “It cannot be lowered any further.”
In Pakistan, mobile termination charges have already been reduced from around Rs2 a few years ago to about Rs1.25 currently. “We are now doing a cost analysis, and this may go down further,” a senior Pakistan government official told Mint in a phone interview, requesting that he not be named.