‘Lowering interconnect charges will benefit only new operator’

Kumar Mangalam Birla, Chairman, Aditya Birla Group, has called for a transparent cost-based interconnect usage charges (IUC) and dispelled the myth that lower interconnect charges would bring down cost for consumers.

Birla is also the Chairman of Idea Cellular, which will get adversely impacted if the the interconnect charges are reduced further.

In a letter addressed to RS Sharma, Chairman, TRAI, Birla said based on audited submission, the termination cost of the operator serving 90 per cent of Indian mobile customers works out 30-35 paise a minute.

The lowering of termination charges below the full cost of the terminating operator will benefit the new operator (Reliance Jio) which is offering free voice calls, he added.

Termination charge is a fee paid by originating operator to terminating operator for delivering the call. Birla’s letter comes amid a debate within the industry, initiated by TRAI, on the future of interconnection charges. Under the current regime, the operator on whose network the call originates pays 14 paisa to the operators on whose network the call terminates. This money is paid because the operator, on whose network the call ends, carries the call on its network from an exchange to the end user. This requires the operator to invest in setting up infrastructure.

“IUC is important in the current scenario, where traffic asymmetries have increased to unprecedented level of 10:1 (with RJio terminating just one call at its end for every 10 calls it sends to the competing operator’s network) as the new operator offers free voice service,” he said.

Birla letter to TRAI chief comes when the group’s mobile venture Idea Cellular reported third consecutive quarterly net loss of ₹815 crore in the June quarter due to tariff war unravelled by the incumbent Mukesh Ambani-promoted Reliance Jio.

Similarly, Sunil Mittal-promoted Bharati Airtel, the country’s largest telecom operator, reported 75 per cent fall in June quarter net profit at ₹367 crore. Lowering of IUC will not only impact competition but also fuel financial stress in the mobile industry, Birla added. However, newer operators such as Reliance Jio has been pushing for a ‘Bill and Keep’ model wherein the interconnection charge is reduced to zero.

RJio has a greenfield 4G network that allows it to offer voice calls practically at zero cost.

If this model is adopted, incumbent operators stand to lose on the termination fee they collect. That’s because the incoming calls into an incumbent operator’s network is always higher than the incoming calls into a new operator’s network. RJio has argued that if the charges are not reduced then incumbent operators stand to gain ₹1,700 crore every month.

With TRAI yet to reveal the model and calculation for existing IUC charges of 14 paise per minute fixed in March 2015, Birla said the regulator should share and take feedback from the industry before arriving at any new IUC rate.

Dismissing the misconception that lower IUC charges will bring down tariff for consumers, Birla said the charges are zero sum game at the industry level and tariffs were falling between April 2009-February 2015 when the IUC charges were unchanged.

The fact that the new operator is offering free voice itself is evident that IUC has not impacted consumer tariff, he said.

While the new operator (RJio) claims that their cost structure is much lower for recommending lower IUC rate, Birla said the operator’s claim cannot be verified as the company is yet to prepare its audited profit and loss account for full financial year from which the cost can be determined.

‘A full cost-based and transparent IUC regime will go a long way in encouraging competition and restore the health of telecom industry,” he said.