Vodafone CEO Vittorio Colao: Regulation shouldn’t suit a new entrant’s ambitions
New Delhi: Vodafone Group Plc chief executive Vittorio Colao has urged the Indian government to ensure that the industry is not regulated to suit the ambition of a new entrant, referring to billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd.
“It is undesirable for a critical core industry like telecom to be regulated based on the ambition of a new operator with no history of financial sustenance,” Colao said in a letter written to telecom minister Manoj Sinha.
Colao warned that a move to further reduce the mobile termination charge (MTC) risks destroying the very companies that have invested to build the industry. Last week, Kumar Mangalam Birla, chairman of the Aditya Birla Group and Idea Cellular Ltd, expressed similar apprehensions in a letter to the telecom regulator.
Reliance Jio has proposed the scrapping of interconnection user charges (also known as MTC), while Bharti Airtel Ltd, Idea Cellular and Vodafone India Ltd sought to raise them.
Vodafone Group, Colao said, is alarmed by reports suggesting that the telecom regulator may reduce MTC.
“The existing rate of 14 paisa is already below cost. Even at the present MTC rates, 15-20% of our sites run at a loss. Any reduction in MTC risks large scale site shutdown of already unprofitable sites in rural India and which would greatly diminish the population coverage of mobile telephony,” he said.
Under the interconnection user charge, or IUC, for every mobile phone call, the telecom firm that originates the call pays 14 paise to the one that receives the call. On a net basis, established operators with more users and bigger networks tend to earn more from IUC, while newer and smaller ones find it a burden.
Reliance Jio has proposed zero IUC, while the other three presented their cost structures to press for a hike in IUC to at least 30 paise.
Jio says its cost of servicing a call is next to zero and hence it proposed a so-called “bill and keep” model, in which companies only keep a record of incoming calls on their network but don’t raise any demand from other operators.
Colao rejected Jio’s claims.
“There is a view being propagated by the new entrant that as a 4G-only operator, it has a cost advantage in the region of 70% compared to the established 2G/3G/4G operators. There is no evidence—either Indian or international—to support such a claim. If this was indeed true, there would be a number of 4G-only operators emerging around the world, which is not the case,” Colao said, adding that the government must note the costs of the new entrant are higher than any other operator, whether in terms of employees, which is about double Vodafone India’s total staff strength, including outsourced employees, or in terms of infrastructure.
Colao also alleged that the present traffic levels of Reliance Jio are due to “extreme promotional activity and generated by incurring huge losses”.
“RJio is also assuming that it can recover its costs many years into the future. However, continued under-pricing of services leads to a rapidly increasing cost per subscriber, recovery of which will require higher Arpus in future, which is unfeasible/unrealistic,” Colao said.
Arpu stands for average revenue per user.
An email sent to Reliance Jio remained unanswered till press time.
Colao, in the letter, said telecom services reached citizens in India largely due to the “calling party pays”, or CPP, rule established in 2003.
“It is relevant to note that nowhere in the world do Bill and Keep (BAK) and CPP regime co-exist as is being proposed by (the) new operator. In BAK regimes, the consumers pay for incoming calls, which is unrealistic for Indian consumers,” he added.
Colao said he hoped that an inter-ministerial group formed to address the issues affecting the sector will recommend a reduction in the interest rates for deferred spectrum payments to 6.25%, in line with the improved macroeconomic trends and an increase in the period of payment for spectrum.
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