There is more bang for the BAK

Recently, telecom regulator TRAI amended regulations on interconnection usage charges (IUC). For starters, IUC is the charge a service provider, whose subscriber originates a call, pays to the service provider in whose network the call terminates. After TRAI’s amendmends, mobile termination charges (wireless to wireless) will be 6 paise a minute from 14 paise.

Further, from January 1, 2020, the mobile termination charge will be zero, ringing in the ‘Bill and Keep’ (BAK) regime.

In 2011, after a comprehensive review and multi-stage consultation process with all stakeholders, and considering recovery of costs that existed in the past, prevalent cost structure and large-scale deployment of low-cost IP-based networks for core and backhaul, TRAI calculated termination charges using various methods as directed by the Supreme Court.

TRAI had concluded that the mobile termination charge of ₹0.10 a minute — determined through the method of Pure-LRIC (long-run average incremental cost) — may be made applicable from 2012 with progressive reduction and finally converging to zero termination charge after two years.

Interestingly, TRAI never implemented the findings, despite the fact that there were no legal challenges to the findings. Instead, it initiated a fresh consultation process on IUC and, as an outcome, implemented the BAK regime for fixed-to-fixed, fixed-to-mobile and mobile-to-fixed calls.

However, for mobile-to-mobile calls, TRAI issued a high termination charge of ₹0.14 per minute. Hence, the latest revision in IUC is a welcome move, but certainly more can be done.

Any policy regime towards BAK benefits customers as well as the telecom sector in terms of robust, long-term growth. With the advent of IP technology, the cost of voice has become close to zero.

Further, all incumbent operators have already recovered incremental network cost for voice calls on their 2G networks over the last 14 years through IUC, and no new investments are being made for voice services.

It was, therefore, imperative that IUC charges should have been made zero with immediate effect. However, TRAI decided in its prudence to defer the onset of BAK regime by two more years so as to let the laggard incumbents catch up on latest technology in all IP- based networks and voice traffic.

BAK benefits all stakeholders, including consumers and operators. Firstly, it allows modernisation of networks by encouraging incumbent operators to adopt latest network technologies, which was getting difficult in a cost-based termination scenario owing to in-built cost complacency.

Thus, cost effectiveness of packet-switched call, using latest IP technologies, shall prompt operators to implement VoLTE technology on all IP network platforms. This will not only reduce their operational costs but will also improve call quality and fix call drops. Currently, IP-based interconnection is permitted but operators are not on the same page on this.

Once BAK is implemented, all operators will move to latest technologies because of inherent cost benefits and they themselves would prefer IP-based interconnection. Even globally, IP-based network is the preferred model to address the so-called Next Generation Networks (NGN).

Secondly, consumers will benefit significantly. Existing mobile termination charges acted as a barrier for reduction in retail tariff. The operator of originating call has to design and collect tariff from consumers which includes IUC payable to the terminating network operator.

Hence, end-user-tariffs cannot be reduced unless IUC is eliminated. BAK will directly reduce consumer retail tariff, which will promote wider adoption of wireless telecommunications among marginal sections of society who are yet to enjoy the merits of telecom revolution. It will encourage flat rate billing, which will be in the interest of consumers and will address higher tariff differentials for on-net and off-net calls on legacy networks.

This would result in simplification of tariff plans and more competition. Operators can design innovative tariff plans such as bundled pricing and new operators can effectively compete with incumbent operators on pricing arena. BAK will help in efficient and optimum network usage as operators will offer tariff schemes best-suited to customer needs. Reduced retail tariffs and increased usage will boost growth of the sector.

Thirdly, there will be fair and transparent competition. This is crucial in today’s scenario where operators are in conflict mode even publicly. Termination charges are in the interest of only incumbent operators but are detrimental for competition.

With a larger subscriber base and network reach, these operators are net recipients of IUC. Thus at the cost of new entrants, incumbent operators can subsidise own tariffs, which is difficult to be matched by a new entrant. BAK necessitates operators recovering termination costs, if any, from their own subscribers rather than loading the same on other operators.

Further, BAK neutralises revenues, which incumbent operators get from new and small operators in the form of IUC cost. This enables incumbents to offer lower predatory tariffs to their customers and thereby inhibit competition.

Also, BAK empowers operators by providing a level-playing field with over-the-top (OTT) applications. Operators who have upgraded to IP-based technologies network can now compete more effectively with OTT applications.

There are no interconnection costs faced by OTT applications and, therefore, these communication apps are able to offer voice services at close to zero cost. The BAK regime will enable telecom operators to compete effectively with the OTT apps as they would also be able to offer voice at close to nil cost. Possibly, this will be a better and practical approach to counter the OTT reach.

In sum, the TRAI move on IUC heralds a more optimal era in the Indian telecommunications industry and should take it to the next phase of growth.

The writer is former country head of General Dynamics