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Don't scrap IUC, hike it to 20 p/min instead, Vodafone Idea appeals to Trai

'IUC charges can't go to will impact our books for sure', says Vodafone Idea CEO Balesh Sharma.Premium
'IUC charges can't go to will impact our books for sure', says Vodafone Idea CEO Balesh Sharma.

  • Vodafone Idea wants Trai to abandon plan to scrap interconnection usage charges and hike it to 20 p/min from 6 p/min now
  • Vodafone Idea, which has 387 million active users, believes that Trai abolishing IUC charges from 1 January 2020 will hurt its earnings

New Delhi: India’s largest wireless operator Vodafone Idea Ltd has asked the telecom regulator to abandon its plan to scrap the interconnection usage charges (IUC) from 1 January and instead raise it to 20 paise a minute from 6 paise now, a top company official said.

Vodafone Idea, which has 387 million active users, believes that abolishing IUC will hurt the earnings of the operator. The company is already struggling in a hyper-competitive telecom market and had posted a loss of 5,004 crore in the December quarter, while its rivals Bharti Airtel Ltd and Reliance Jio Infocomm Ltd posted profits of 86 crore and 831 crore, respectively.

“It will impact our books for sure," Vodafone Idea chief executive officer Balesh Sharma said in an interview. “It (scrapping IUC charges) should not happen... I would actually want it back to 20 paise a minute which we are fighting for. If not, it can’t go to zero," Sharma said.

IUC charge is levied by mobile networks handling incoming calls from rival networks and is a major source of revenue for Airtel and Vodafone Idea. In September 2017, the Telecom Regulatory Authority of India (Trai) ordered a reduction in IUC to 6 paise per minute from 14 paise effective 1 October 2017, and an end to IUC from 1 January 2020, to bring down telecom tariffs. Telecom operators, other than Reliance Jio, were hit hard by the order. It worsened the financial health of the industry that was already reeling from a bruising price war triggered by the entry of Reliance Jio, backed by India’s richest man Mukesh Ambani, in September 2016.

As a result, Bharti Airtel’s quarterly profit plunged 39% to 306 crore in three months ended 31 December 2017, while Idea Cellular’s quarterly loss more than tripled to 1,285.6 crore in the same quarter.

Reliance Jio, on the other hand, benefited from the IUC cut as more calls originate from its network than terminate, and reported a profit of 504 crore in December 2017 quarter, a first for the company, from a loss of 271 crore in the preceding quarter.

IUC has been a contentious issue in the telecom sector. In fact, at the Mobile World Congress in Barcelona in February, Nick Read, chief executive of Vodafone Group Plc, said that for the last two years, many regulatory outcomes in India worked against every operator in the market except Reliance Jio.

Zero IUC means operators would make no money for receiving calls on their networks.

“Bringing down the IUC from 14 paise to 6 paise... I see that as a modelling issue. But 6 paise to zero is a principle issue. Somebody has to pay me for the termination of the call on my network. The logic used for getting to zero was that by that time, industry traffic would balance out. It has not balanced out," Sharma said.

If the traffic flow among operators is symmetrical or evens out, it will not have a negative impact on any operator as it is simply a charge paid from one operator to another.

Vodafone Idea has already started providing evidence to the regulator on the traffic flows in the telecom sector. It believes that because traffic with respect to Reliance Jio is still asymmetric (more calls from Jio’s network end on theirs than the other way around), a shift to zero IUC does not make sense.

Vodafone India and Idea Cellular completed their merger in August 2018 and are currently undergoing an integration exercise to create synergies which would bring down costs of operating networks. The company is also in the midst of a capital raising exercise through a rights issue of 25,000 crore to existing eligible equity shareholders. It is also simultaneously working on monetising its fibre assets and stake in the joint entity of Bharti Infratel and Indus Towers which is close to completing their merger.

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