India's Bharti Airtel says it could incur losses of up to 5.5 billion Indian rupees ($85.4 million) every quarter because of calls originating from Reliance Jio's network.
In a strongly and peculiarly worded statement, the mobile market leader said that Reliance Jio "wants to simply transfer its cost to Airtel and other operators. As per current estimates, this cost would be to the tune of INR150 billion [$2.32 billion] to INR200 billion [$3.1 billion] per year for the industry and will only increase going forward. Such cost transfer will allow Reliance Jio to use its muscle power and price its services in a predatory manner to kill the rest of the industry and create a monopoly."
Under India's calling party pays (CPP) system, customers are billed for outgoing rather than incoming calls, as in various other markets. The calling party's operator will also make a payment for terminating a call on a rival's network. But this mobile termination charge (MTC) has become a sore point between Bharti Airtel Ltd. (Mumbai: BHARTIARTL) and RJio, which reckons its bigger rival is benefiting unfairly from the arrangement. It is agitating for its replacement with a "bill and keep" model under which MTCs would be scrapped. Airtel says would mean transferring costs from RJio to other telcos and throttle competition.
The nature of the dispute is certainly not unique to India. In other parts of the world, new entrants and smaller players have typically argued for the abolition of MTCs, while market leaders are generally keener on preserving them. It is not hard to see why. A dominant player naturally pays less in MTCs than it receives from them, because calls made by the customers of rival telcos are likelier to end up on its own network than another. By contrast, smaller players tend to pay a lot in MTCs but make almost nothing from them.
Even so, in its statement, Airtel said that RJio's allegation that it generates revenues from MTC payments is "not only false but laughable." It also insisted that the current MTC rate of 14 paisa per minute is well below the per-minute "production cost" of 35 paisa. "With the tsunami of calls originating from Reliance Jio's network, Airtel loses 21 paisa for every minute that is carried on its network," it said. "This has resulted in a loss of Rs 550 crore [INR5.5 billion] per quarter for Airtel alone."
"In effect, Reliance Jio aims to build its business by getting a free ride on the highways built by Airtel and other operators," said Ravi Gandhi, Airtel's chief regulatory officer. "Their proposal to move to bill and keep will further burden other operators and make them weak. At the same time, it allows Reliance Jio to continue with its strategy of predatory pricing and ultimately throttle all competition. This is the sinister design of Jio. The question to ask is does India want a monopoly situation in telecom?"
For its own part, RJio has previously argued that Airtel and number three player Idea Cellular Ltd. have made in excess of INR733.8 billion ($11.4 billion) and INR459.4 billion ($7.13 billion) respectively from MTC payments in the last five years. It has dismissed suggestions that incumbents are incurring losses as a result of low interconnection fees.
Now bitter rivals, Airtel and RJio have been indulging in a war of words ever since the latter launched its services in September last year, lodging complaints with regulators on issues ranging from MTC to predatory pricing.
— Gagandeep Kaur, Contributing Editor, special to Light Reading