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Aditya Birla Group’s Kumar Mangalam Birla will be the chairman of the entity that will be created after the Idea-Vodafone merger. Photo: Abhijit Bhatlekar/Mint
Aditya Birla Group’s Kumar Mangalam Birla will be the chairman of the entity that will be created after the Idea-Vodafone merger. Photo: Abhijit Bhatlekar/Mint

Kumar Mangalam Birla calls for transparency in IUC regime

Idea Cellular chairman Kumar Mangalam Birla, in his letter to Trai, says 'perception being created'that drop ininterconnect usage charges (IUC) will lead to lower tariffs

Kumar Mangalam Birla, chairman of the Aditya Birla Group, has written to Telecom Regulatory Authority of India (Trai) chairman R.S. Sharma, urging him to establish “a full cost-based and transparent IUC (interconnect usage charge) regime", which will “go a long way in encouraging competition, restoring the health of the industry and ensuring a viable and balanced industry structure".

This is the first time Birla, chairman of Idea Cellular Ltd, and also chairman of the entity that will be created by its merger with Vodafone India Ltd, has publicly come out against a proposed move by the regulator to change the interconnect regime. The change, telecom operators such as Bharti Airtel Ltd have already argued, favours newcomer Reliance Jio Infocomm Ltd and hurts incumbent operators such as itself, Vodafone India and Idea Cellular.

When IUC was introduced in India, the country moved from receiving party pays (RPP) to the calling party pays (CPP) regime wherein the user who gets the incoming call is not charged, Birla argued in his letter dated 21 August, a copy of which has been reviewed by Mint.

For instance, when a call is made by a person on Vodafone’s network to a person on Airtel’s network, Vodafone is not allowed to charge the customer for the incoming call. Airtel compensates Vodafone for the call made on its network. This is IUC.

A telecom firm currently pays IUC at 14 paise per minute. However, according to Birla, “...based on audited submissions, the cost of termination remains at 30 to 35 paise per minute".

In this context, Birla has challenged the claim of the new operator (Reliance Jio) that its cost structure is lower, alleging that the firm has not submitted an audited profit and loss account. Birla, in his letter, has called for the need to be transparent in determining IUC rates. He wrote that the model and calculation for the 14 paise per minute rate has still not been disclosed by Trai.

Globally, Birla pointed out, IUC rates in comparable markets such as China, Indonesia, Brazil and US are several times that of India. In Indonesia, it is Rs1.67 per minute and in Brazil approximately Rs2 per minute, he wrote.

In his letter, Birla has also challenged the “perception being created" that a drop in IUC would result in lower tariffs. “IUC is a settlement between operators and has no impact on consumer tariffs," he wrote. He further argued that “The Authority (Trai) would acknowledge that any determination of termination charge below full cost of the terminating operator will benefit the new operator (Jio) who is offering free voice calls".

Telecom operators such as Bharti Airtel and Idea Cellular have been rattled by Trai’s consultative review, currently in progress, of the IUC settlement rate. They argue that the bill-and-keep model has never been imposed by regulatory fiat and that they are usually done voluntarily and typically put in place when there is symmetric traffic between the two networks (in the case of Reliance Jio, they argue, the volume of outgoing calls is around nine times that of incoming ones).

In a bill-and-keep scenario, Reliance Jio could save about Rs4,400 crore annually on IUC, while there would be equal and opposite loss for incumbents. Idea Cellular alone claims it could lose Rs2,000 crore a year because of the difference between the actual termination charge and the 14 paise per minute IUC rate now.

Reliance Jio has been pushing for the bill-and-keep model.

In an 18 July presentation on IUC, the Mukesh Ambani-owned Reliance Jio pointed out that “prominent countries such as the US, Canada, Singapore, Hong Kong, Brazil, Mexico have moved towards BAK."

In its presentation, Reliance Jio notes that “...When the whole world is moving towards Nil IUC, India has been moving in the other direction—causing financial distress for smaller operators while benefitting incumbent operators".

Reliance Jio didn’t respond to an email till the time of going to press.

It was only a month back that Sunil Mittal, chairman of India’s largest telecom firm Bharti Airtel Ltd, wrote to Sharma, saying he is “at a loss as to why Trai should be considering bill and keep (BAK) model" and break away from the global well-established practice of IUC.

“India is in a high investment phase with the highest-ever telecom investments being witnessed both in spectrum and network capex for improving rural coverage and capacity and for investing in evolving technologies, all aimed at fulfilling...(the) Digital India Vision. In such a situation, a cost-based IUC policy is most appropriate," Birla concluded.

Meanwhile, Idea Cellular also plans to introduce its own voice over LTE (VoLTE) services on its 4G LTE network by early 2018. Currently Reliance Jio is the only telecom firm that offers VoLTE services.

On 25 July, Birla and Vittorio Colao, chief executive, Vodafone Group said in a joint statement that they expect the merger between the two companies to be completed in 2018. UK-based Vodafone Group Plc’s India unit and Idea will have a combined strength of about 400 million customers and a 41% revenue market share. Reliance Jio has about 120 million customers.

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