This article was republished after telecom regulator TRAI cut the fees operators pay for cross-network calls by more than half. The move will benefit smaller companies like Mukesh Ambani’s Reliance Jio.
Mukesh Ambani’s Reliance Jio Infocomm Ltd. has to pay a fee for every call its subscriber makes to a Bharti Airtel Ltd. user, and vice versa. And it’s applicable for all such cross-network calls.
The fee is called the interconnect usage charge, and the two telecom operators are sparring over it. The Ambani-led company wants these charges abolished, while its older rival, led by Sunil Bharti Mittal, wants them doubled. Even a group of parliamentarians has joined in, demanding that the charges be scrapped.
Why Do Operators Pay Interconnect Usage Charges?
A telecom operator pays interconnect usage charges, or IUC, whenever a rival provides access to its network to complete a call. Mobile termination rate, or MTR, is a type of IUC. It’s payable for calls originating from one mobile network and ending at another.
When a Reliance Jio user calls a Bharti Airtel subscriber, the Mittal-led company uses its infrastructure to allow the call, and hence gets paid for it.
The mobile termination rate currently stands at 14 paise per minute, and is the only such charge operators pay.
IUC on mobile-to-fixed line (like Vodafone to MTNL) and fixed line-to-fixed line (like BSNL to MTNL) calls were revised down to zero in March 2015.
What’s The Issue?
The Telecom Regulatory Authority of India floated a discussion paper to review interconnection charges in September 2016.
It proposed a ‘Bill and Keep’ regime that seeks to bring mobile-to-mobile interconnect charges to zero as well. The regulator argued that the number of fixed line subscribers had “improved significantly” after it cut IUC to zero in 2015.
TRAI had told the Supreme Court in 2011 that telecom operators should be given time till 2014 to move to the ‘Bill and Keep’ regime. That didn’t happen as operators kept seeking extensions to formulate their responses.
The regulator is expected to conclude its review soon.
Why Does It Matter?
Any change in interconnect charges has a direct impact on revenues of operators.
Larger players like Bharti Airtel, with their deeper rural networks and premium pricing, typically see significantly higher traffic of incoming calls than outgoing, according to a report by Kotak Institutional Equities.
Which means, larger operators are the net earners of interconnect charges. An aggressive player like Reliance Jio, with its unlimited calling, only adds to the asymmetry giving more revenue to its bigger rivals, the report said.
If the termination charge is lowered, it would be nothing but a transfer of revenue from the net-earning older operators to net payers like Reliance Jio, it said.
What Reliance Jio Argued
Reliance Jio supports abolishing termination charges. In its representation to TRAI, the Ambani-led operator said that two of the older operators had made an “excess recovery” of around Rs 1.2 lakh crore due to delay in reduction of these charges. Jio said benefits to carriers come at the cost of consumers and smaller operators.
Reliance Communications Ltd., Aircel, and the state-owned Mahanagar Telephone Nigam Ltd. too support scrapping these charges.
What Bharti Airtel Said
Bharti Airtel, along with Vodafone India and Idea Cellular Ltd., wants MTR doubled to 30-40 paise per minute, arguing that the current rate is unviable.
The Mittal-led operator said it already loses 21 paisa every minute due to the “tsunami of calls” from Reliance Jio’s network. This has resulted in a loss of Rs 550 crore per quarter, it said.
Industry lobby group Cellular Operators Association of India has demanded another open house on IUC, saying that TRAI’s review has been done in “haste”.
What Will Be The Financial Impact?
Reliance Jio: A 50 percent cut in MTR could mean annual savings of around Rs 2,700 crore, according to Kotak Securities.
Bharti Airtel: A 50 percent cut would mean a direct 5-5.5 percent impact on its operating income, in addition to the indirect risk of Reliance Jio becoming more aggressive.
Idea Cellular: A 50 percent cut would mean 8-9 percent risk to its operating income.
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