Telcos to seek fresh dialogue on scrapping interconnect charges
Lobby seeks to discuss whether ending IUC will achieve intended objective, given the already low tariffs
New Delhi: The Cellular Operators Association of India (COAI) will approach the telecom regulator to seek fresh consultations on scrapping interconnect usage charge (IUC), a top official at the telecom lobby said.
IUC is levied by mobile networks handling incoming calls from rival networks, and is a major source of revenue for telcos. In September 2017, the Telecom Regulatory Authority of India (Trai) ordered a reduction in IUC to 6 paise per minute from 1 October 2017 from 14 paise earlier, and an end to IUC from 1 January 2020, to bring down tariffs.
Telecom operators, already reeling from a fierce price war that started with the entry of Reliance Jio Infocomm Ltd in September 2016, were hit hard by the order.
The telco lobby would seek an opportunity to discuss with the regulator whether the move would achieve the intended objective, given that tariffs are already very low.
“Looking at that order, we are saying that have there been material changes that would need to have this revisited...You want to look at the objectives you were trying to achieve, has it begun to achieve the objectives for which you believed it was necessary to reduce the interconnect charge,” COAI director general Rajan Mathews said in an interview.
Zero IUC means operators such as Bharti Airtel Ltd, Idea Cellular Ltd and Vodafone India make no money for receiving calls on their networks.
If the traffic flow among operators is symmetrical, it will not have a negative impact on any operator as it is simply a charge paid from one operator to another.
“The matter of concern is when IUC goes down to zero... is this (move to scrap IUC) still going to go forward because what about the health of the industry, what about symmetrical traffic flow... the regulation at that time had mentioned that the volume of traffic at that time will get balanced out (among operators),” COAI director general Rajan Mathews said.
The decision to cut IUC was during the first term of Trai chairman R.S. Sharma.
Last week, he was granted a second term after the Appointments Committee of the Cabinet on 9 August approved his reappointment till 30 September 2020. Sharma will be in charge when the decision to abolish IUC gets implemented.
While Reliance Jio gained significantly from the cut in IUC to 6 paise a minute as it meant lower costs for the new entrant, the move hit the balance sheets of Bharti Airtel, Idea Cellular and Vodafone India.
Bharti Airtel’s quarterly profit plunged 39% to ₹306 crore in the three months ended 31 December 2017 while Idea Cellular’s quarterly loss more than tripled to ₹1,285.6 crore in the same quarter. Revenues of the two incumbent operators have been falling consistently.
The Cellular Operators Association of India also suggests that Trai start a process to outline the cost-benefit analysis of a regulation. “Every major regulator worldwide as part of best practice does this. This should happen during the consultation of the proposed regulation. The benefits should far outweigh the costs, if the benefits are marginal with respect to the costs, then why worry,” he said.
“The reduction in IUC by Trai should have lowered access charges payout. However, the impact was just the opposite. Free calling plans by telecom operators sharply increased the minutes of use, which, in fact, increased the IUC payout,” a 13 August report by Crisil said.
The situation is unlikely to improve in fiscal 2019 and the industry’s operating profit margin is expected to contract a further 150-200 basis points owing to the full-year impact of the IUC cut, the report added.
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