Vittorio Colao, Chief Executive Officer of Vodafone Plc, has warned that any move to reduce interconnect charges will lead to large-scale shutting down of unprofitable mobile networks in India.

In a letter to Telecom Minister Manoj Sinha, Colao said: “Any move to further reduce mobile termination charges (MTC) risks destroying the very companies that have invested to build this industry.”

“The existing rate of 14 paise is already below cost. Even at the present mobile termination rates, 15-20 per cent of our sites run at a loss. Any reduction in MTC risks large-scale site shut-down of already unprofitable sites in rural India and which would greatly diminish the population coverage of mobile telephony,” he added.

Earlier, Airtel Chairman Sunil Mittal and Aditya Birla Group Chairman Kumar Mangalam Birla had separately written to the telecom regulator TRAI seeking status quo on IUC charges.

The letters come amid a debate within the industry, initiated by TRAI, on the future of interconnect charges. Under the current regime, the operator on whose network the call originates pays 14 paise 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.

However, newer operators such as Reliance Jio have been pushing for a ‘Bill and Keep’ (BAK) model wherein the interconnect charge is reduced to zero. RJio claims it has a greenfield 4G network that allows it to offer voice calls practically at zero cost.

Loss of termination fee 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. As a result, a new operator ends up being a net payer of termination fee. Colao said: "In the BAK regime, the consumers pay for incoming calls, which is unrealistic for Indian consumers”.

Challenging RJio’s stand, the Vodafone CEO said: “There is a view being propagated by the new entrant that as a 4G-only operator, it has a cost advantage of about 70 per cent compared to the established 2G/3G/4G operators. There is no evidence – either Indian or international to support such a claim.

“It is undesirable for a critical core industry like telecom to be regulated based on the ambition of a new operator with no history of financial sustenance,” Colao added.

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