Trai lowers IUC, Reliance Jio prevails over Airtel, Idea
New Delhi: The Telecom Regulatory Authority of India (Trai) on Tuesday more than halved the so-called interconnect usage charge (IUC) to six paise with effect from 1 October and abolished it all together for all local calls starting 1 January 2020, dealing a big blow to older telecom firms, such as Bharti Airtel Ltd, Vodafone India and Idea Cellular ltd, and a potential boost to newcomer Reliance Jio Infocomm Ltd.
The change could push some older telecom operators into losses. Previously, analysts had estimated that a reduction in IUC from 14 paise to 6 paise would mean a gain of around Rs3,800 crore for Reliance Jio and a corresponding loss for incumbents.
Trai believes that the reduction of the IUC, levied by a telecom operator for terminating a call from another telecom firm (the second telecom firm pays) will benefit consumers and boost competition.
On its website, the regulator said that the move to the so-called Bill And Keep regime (where no interconnect charge is paid by a telecom firm to another) would “encourage flat rate billing and time differentiated charges, both of which will improve capacity utilization and will be in the interest of consumers”.
For months now, rival telecom firms have lobbied hard to have their way with IUC. Older telecom firms wanted it to be raised to at least 30 paise, while new entrant Reliance Jio wanted it cut to zero. Reliance Jio claimed in July that India’s top three telecom firms generated Rs1.04 trillion in the past five years because of non-implementation of a 2011 regulatory road map to cut IUC to zero. The Mukesh Ambani-controlled Reliance Jio was pressing for the BAK model.
Bharti Airtel’s chairman Sunil Mittal and Idea Cellular’s chairman Kumar Mangalam Birla wrote to Trai seeking continuation of the IUC regime. Vodafone Group Plc’s Group CEO Vittorio Colao and Singtel’s Group CEO Chua Sock Koong wrote to telecom minister Manoj Sinha seeking the same.
The older telecom firms argued that because traffic between them and Reliance was asymmetric (more calls from Jio’s network end on theirs than the other way around), a shift to a BAK model did not make sense now.
Trai’s decision may be challenged in a court.
Rajan Mathews, director general of lobby group Cellular Operators Association of India (COAI) said Trai’s move “is disappointing for the majority of our membership” and that the telecom firms would want “details... used to arrive at” the 6 paise figure. He added that most affected telecom firms would “seek redressal from the courts in order to reverse the order”, which would be decided on Wednesday.
“We are disappointed with this decision and are now considering our options in response to it,” said a Vodafone India spokesperson when contacted. “The Indian telecom industry is already 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, undermining the government’s vision of Digital India,” the spokesperson added.
Spokespersons for Bharti Airtel and Idea Cellular declined to comment. A spokesperson for Reliance Jio did not immediately respond to an email seeking comment.
Contrary to the perception that scrapping IUC will benefit one company, the move will benefit everybody since users are moving “to more and more data based communication and telecom as industry works on inter-working of the various participants,” said Amresh Nandan, research director (communications) at advisory Gartner Inc.
On its website, Trai termed as “anti-competitive” the practice of older telecom firms offering very low tariffs for calls made within their own network and higher rates for calls made from a different network to their network.
To promote newer technologies, the regulator is expected to base its regulations (and tariff regime) on the most efficient technology, Trai added.
“The Authority examined that when clear demonstrable large difference exists in the cost of providing same services, why TSPs (telcos) are not migrating to newer technologies such as VoLTE.”
According to Idea Cellular, time division multiplier-based networks using 2G, 3G, 4G technology currently account for 95% of voice traffic; and the newer VoLTE-based 4G network, less than 5% of voice traffic. VoLTE is largely used by Jio; Airtel started the service in Mumbai last week.