The numbers behind Reliance Jio and Airtel’s IUC spat
In Reliance Jio Infocomm Ltd’s books, Bharti Airtel Ltd has made an excess recovery of Rs46,958 crore because the telecom regulator didn’t do away with interconnect usage charges (IUC), as it had suggested earlier.
Jio’s charges are with reference to an affidavit submitted by the Telecom Regulatory Authority of India (Trai) to the Supreme Court in October 2011, which had talked of a phase-out of IUC by 2014. Vodafone India Ltd and Idea Cellular Ltd have together accumulated another Rs57,476 crore on account of the anomaly, according to Jio.
Airtel, of course, has questioned Jio’s calculations in a letter to Trai: “Even if one were to assume the claims made by R-Jio to be correct, the present value of surplus recovery will be only Rs7443 Crores and not Rs46958 Crores as claimed by Reliance Jio in its presentation.”
How have the two companies arrived at numbers that are poles apart? Jio’s latest missive to the regulator throws light on the matter.
Airtel has simply multiplied the difference between prevailing IUC rates and the proposed rates in the Trai affidavit with the net incoming calls it receives from other telecom service providers. The present value of these cash flows in the past five years works out to Rs7,443 crore.
Jio, however, says that using net incoming calls to calculate surplus recovery skews the picture. It says Airtel recovers IUC payables by charging higher tariffs for outgoing calls that land outside its network, compared to rates that apply for calls within its network. According to Jio, it therefore doesn’t make sense to deduct Airtel’s IUC payments from receipts while calculating excess recovery.
Using this approach, the excess recovery works out to Rs30,650 crore. Jio ends up with an even higher number because it has also included on-net incoming calls in its calculations. This is strange because Airtel, or any operator for that matter, doesn’t receive IUC for incoming calls that originate form its own network. Jio’s decision to include “the amount of IUC deemed receivable for on-net incoming calls on the network” takes its estimate of excess recovery to Rs46,958 crore.
Of course, as everything to do with the IUC debate, all of this is contentious. In fact, Airtel’s case is that IUC should ideally be raised to 30 paise from the current 14 paise. As such, in their books, rather than excess recovery, there is an under-recovery of Rs6,829 crore on account of a sub-optimal IUC rate.
It’s worth mentioning that the above debate is one-dimensional and doesn’t take into account intricacies such as the two-sided nature of the telecom market. Hopefully, when Trai releases its IUC recommendations, it can demonstrate that it has been able to cut out the noise, and has framed its policy based on sound analysis.
- Apple Watch 3 has connectivity glitch, shares take a hit
- Google buys HTC engineers for $1.1 billion to aid hardware push
- Pension crisis looms for India as workers shun sunset savings
- Pakistan PM seeks implementation of UNSC resolution on Kashmir
- North Korea shrugs off Donald Trump threat as ‘dog’s bark’