India's telecom regulator has slashed the fees that operators charge one another for terminating calls in a move that bodes ill for the country's biggest operators, which have profited from higher interconnection rates.
The Telecom Regulatory Authority of India (TRAI) has reduced the so-called interconnect usage charge (IUC) to 6 paise from a previous level of 14 paise. The new rate will come into effect on October 1, while IUCs are to be abolished entirely for local calls in January 2020.
The regulatory decision risks pushing incumbent operators Bharti Airtel Ltd. (Mumbai: BHARTIARTL), Vodafone India and Idea Cellular Ltd. even further into losses. All have reported earnings setbacks since the arrival in India's mobile market of Reliance Jio, a disruptive new entrant that began offering services in late 2016. The Cellular Operators Association of India (COAI), which represents the main players, has hinted that it might seek a reversal of the TRAI order in India's courts.
In the meantime, operators have lashed out at the regulator. "The Indian telecom industry is already experiencing the greatest period of financial stress in in its history," said Vodafone in a press statement. "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."
Airtel's response is similar. "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 favor," said the company in a clear reference to RJio.
Indeed, RJio appears to benefit from lower IUCs because -- as a smaller player -- it currently spends more on termination than it generates in interconnection revenues.
Both sides have now been fighting an IUC battle for some time. Sunil Bharti Mittal, the chairman of Bharti Airtel, and Kumar Mangalam Birla, his counterpart at Idea Cellular, have previously written to the TRAI urging it to maintain IUCs. Vodafone Group CEO Vittorio Colao has done the same. All three players insist they have seen huge volumes of RJio-originated traffic terminating on their networks. RJio, meanwhile, has been lobbying authorities to adopt a bill-and-keep model, which would scrap IUCs entirely.
The TRAI evidently believes that a reduction in IUCs will benefit consumers and will boost competition in the industry. The move, it says, will: "encourage flat rate billing and time differentiated charges, both of which will improve capacity utilization and will be in the interest of consumers."
What remains unclear is what impact the order will have once voice-over-LTE becomes the norm in India. RJio uses VoLTE technology to support its voice offerings, while Airtel has launched VoLTE services in Mumbai and plans to introduce them in other parts of the country.
— Gagandeep Kaur, contributing editor, special to Light Reading