How a 14 paise charge per call is redrawing battle lines between Reliance Jio and others

Key Highlights

• TRAI is expected to cut IUC charges between 50-100%.
• Jio stands to benefit the most from cut in IUC.
• IUC has been dropping since 2009. 

In a fresh round of the ongoing battle between the telecom operators and Reliance Jio on interconnection usage charges (IUC), the CEO of Vodafone Vittorio Colao wrote to the Telecom Minister, Manoj Sinha appealing against the cut in IUC.

IUC charges, which are inter-operator payments, are already below cost the Vodafone CEO alleged. Each operator that has an outgoing call made from its network to another’s pays IUC of 14 paise per minute.

This may come down to under 10 paise as the Telecom Regulatory Authority of India (TRAI) meets to finalise the IUC charges in the industry. Industry experts have predicted that TRAI may cut IUC by 50-100%.

In this case, customers may pay little or nothing for outgoing calls.

But what does 10 paise or even 14 paise mean to these giant telecom operators? 

A lot.

The youngest telecom operator in India – Jio has already reached 12.3 crore subscribers, as on June 30, 2017, as per TRAI reports. While India’s largest telecom player – Bharti Airtel has over 28.6 crore subscribers.

Since it is the largest operator in India, Airtel would logistically receive more calls on its network and make more money than other operators from IUC in India. In just three months from April to June quarter,

Airtel is estimated to have earned Rs 500 crore from Reliance Iio alone in IUC, a report by Live Mint said on August 16.

However Jio had said that voice calls will always be free on its network.

The policies in the industry have evolved over time. In 2003, when telcos began the Calling Party Pays (CPP) plan, termination charges were 30 paise per minute. This was reduced to 20 paise per minute in 2009 and dropped further to 14 paise in 2015.

Now in the age of unlimited calling and more focus on data services, Jio has made a case for drop in IUC altogether.

Jio would benefit the most if TRAI rules in favour of another cut in IUC.

Jio stands to benefit up to 41% increase in earnings before income tax deductions and amortisation (EBITDA) margins over four years, a report by HSBC said on August 7.

Margins for incumbent telecom operators would be impacted 11-12 percentage points lower than the year ago period, the Live Mint report added.

Impact of cut in IUC on Bharti Airtel and Idea’s pre-tax profits range from 4-6% and 9-15% respectively, a report by The Ken read on August 17.

The Mukesh Ambani backed telco has spoken in favour of the ‘Bill and Keep’ (BAK) plan which Airtel has called ‘sinister,’ and Vodafone has now lashed out against it.

“It is relevant to note that nowhere in the world do Bill and Keep (BAK) and CPP regime co-exist as is being proposed by new operator. In BAK regimes, the consumers pay for incoming calls, which is unrealistic for Indian consumers,” Vodafone’s Colao said.

A case for rural India

Vodafone’s Colao said, “Any move to further reduce MTC risks destroying the very companies that have invested to build this industry.The existing rate of 14 paisa is already below cost. 

This damages the economic case for connecting rural areas because traffic is largely from urban to rural, with little call origination revenue in rural areas.”

The wireless connections in rural India as per TRAI data stood at 50.61 lakh at the end of June. This is expected to further increase after the launch of the JioPhone and other cheaper smartphone variants in rural India that support 4G internet connection.

However, Airtel, Vodafone and Idea were against this idea stating that telecom infrastructure in rural areas depended on revenue from incoming calls.

Earlier in July, Jio said that it will provide 99 % coverage by the end of this year even if mobile interconnection charges are dropped.

"Poor people in the country are subsidising inefficient network of telecom operators. There is very less cost of carrying calls on 4G network, but still incumbent operators are making people in rural areas use 2G network. We will install network in the village very next day if any operator wants to leave a village," a Jio representative said on IUC at Trai's open house discussion on July 20.

“RJio is also assuming that it can recover its costs many years into the future. However, continued under-pricing of services leads to a rapidly increasing cost per subscriber, recovery of which will require higher ARPUs in future, which is unfeasible/ unrealistic. 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.

Also Read: 

• Charges to call other networks may soon be dropped but telcos to get their bacon from data
• Operators say rural telecom to suffer at nil IUC, Reliance Jio differs