TRAI FINALLY CUTS IUC; BUT WILL CONSUMERS BENEFIT FROM IT?

TRAI’s latest decision to slash Interconnection Usage Charge (IUC) will further divide telecom service providers. Indian cellular industry is split between incumbents — Airtel, Vodafone and Idea — and new entrant Reliance Jio, but Indian consumers don’t mind till they are benefited by reducing tariffs…

NEW DELHI, SEPTEMBER 20, 2017: In a move that could benefit mobile subscribers as their call charges may further go down, the Telecom Regulatory Authority of India (TRAI) has announced slashing of the Interconnection Usage Charge (IUC) from 14 paise per minute to 6 paise per minute, a drop of over 57%, which will subsequently become zero from 2020. The 13th amendment to the Telecommunication Interconnection Usage Charges Regulations states that the mobile termination charge (MTC) has been reduced from 14 paise per minute to 6 paise, which will be effective from October 1. 2017.

“From January 1, 2020, the termination charge for all types of domestic calls shall be zero…For wireline to mobile, wireline to wireline and wire-line to mobile calls, the termination charge would continue to remain zero,” TRAI said in its statement. MTC are charges payable by a telecom operator whose subscriber makes the call, to the operator in whose network the call terminates. The current IUC rate of 14 paise per minute was notified on February 23, 2015 and came into effect from March 1, 2015.

TRAI’s latest move likely to create further division in the mobile telephony market as top three incumbent players — Bharti Airtel, Vodafone India and Idea Cellular — have strongly objected to the move, while new entrant Reliance Jio has been demanding for this cut. Slashing of MTC will further squeeze margins of incumbent players who are already seeing a drop in their revenues and profits.

In its analysis on IUC, Trai said: “The Authority noted that during the last exercise (in 2015), it did not find merit in implementation of BAK (Bill And Keep) regime for wireless to wireless calls. However, it would be worthwhile to re-examine the suitability of BAK with the latest technological trends in the mobile telephony. It has been observed that reducing MTC has benefited consumers and enhanced competition. Reducing MTC to zero by introduction of the Bill And Keep (BAK) regime would help in immediately realising these benefits. BAK regime will encourage flat rate billing and time differentiated charges, both of which will improve capacity utilisation and will be in the interest of consumers. It will also reduce the inter-operator offnet traffic imbalance, and thus could help in convergence to an equilibrium situation.”

“BAK provides a solution to address the issue of market power of call terminating networks. When a call is placed to a particular consumer of the terminating network, the originating network typically has no choice but to purchase the termination service of the terminating operator to which the called party belongs. Thus networks that terminate calls to their subscribers have market power in respect of the terminating call,” TRAI added.

All pleas of top three incumbents for continuing with the calling part pays (CPP) regime and that IUC should cover the cost of operations were not considered by TRAI, which observed that “the justification offered by these operators is that they incur cost of IUC for off-net calls. It is intriguing because there should also be a cost for on-net calls as work done for terminating call is the same. This price differential, which is higher than the IUC rate, is clearly a way for incumbent operators to subsidise on-net calls, and is anti-competitive.”

INCUMBENTS EXTREMELY DISAPPOINTED 

Meanwhile, Airtel has reacted strongly to TRAI’s decision and expressed its “extreme disappointment” over the move. “We are extremely disappointed with the latest regulation on the IUC, especially at a time when the industry is facing severe financial stress. The suggested IUC rate, which has been arrived at in a completely non-transparent fashion, benefits only one operator which enjoys a huge traffic asymmetry in its favour.”

“The sharp drop in the IUC rate will only help transfer part of its cost to other operators, thereby further worsening the financial health of the industry. As part of an industry, which continues to be a critical driving force behind the economic growth in the country, we are genuinely dismayed by this decision,” Airtel added.

Similarly, Vodafone said: “We are disappointed with this decision and are now considering our options in response to it. The Indian telecoms industry is already experiencing the greatest period of financial stress in in its history. This is yet another retrograde regulatory measure that will significantly benefit the new entrant alone while adversely affecting the rest of the industry as a whole. Unless mitigated, this decision will have serious consequences for investment in rural coverage, undermining the Government’s vision of Digital India.”

RELIANCE JIO WELCOMES MOVE

Welcoming the move, Reliance Jio, in a statement, said implementation of ‘Bill & Keep’ regime will help in making services more affordable for Indian customers. “It should have been implemented in 2014 as envisaged in the 2011 Report submitted by TRAI to the Supreme Court and will be six years too late,” it added.

Rubbishing claims that the slashing of IUC will help Jio, it said: “Jio has always offered free voice services to its customers. There is no question of any advantage from the new IUC regulation to Jio as it has already passed on all the benefits to customers. We deny any benefits to Jio. At a time when the world is moving towards IP-based technologies, cost of voice has come down to a fraction of a paisa and the customers should enjoy this advantage. The incumbent operators have a history of opposing all the IUC regulations over the last 8 years, but have not been successful in thwarting passing of the benefits of lower IUC to customers.”

Targeting incumbent operators, the Mukesh Ambani firm said references to financial stress in the industry or the need for IUC to promote rural coverage again shows the attitude of the incumbent operators wherein IUC is being treated as a subsidy that the Indian customers must pay to sustain these operators financially. On the contrary, it is a fact that the high cost IUC regime thus far has caused financial stress for the smaller and new operators.


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