IUC U-Turn: TRAI Now Wants Vicious Cycle To Continue

The Telecom Regulatory Authority of India (TRAI) issued an order that no Interconnection Usage Charge (IUC) would be paid by a mobile operator to another for incoming calls.

That was on September 19, 2017. Currently, this charge stands at 6 paisa per minute.

For all other types of calls such as fixed to fixed, fixed to mobile, and mobile to fixed, TRAI had already made IUC zero, effective March 1, 2015. Come 2020, India was supposed to get into an efficient regime of interconnection known as Bill and Keep (BAK) for all types of calls, including mobile to mobile (M2M).

In a somersault, TRAI now wants the IUC regime to continue for M2M calls. If it materialises, the incumbents would manage to delay the BAK regime for the fourth time. The deadlines have been deferred thrice – in 2014, 2015, and 2017.

On September 18, 2019, TRAI issued a ‘consultation paper’ (CP). Though TRAI calls it just a consultation process, the tone clearly suggests that the regulator has already made up mind to ensure the BAK regime is deferred once again. This means 4G services and smartphones would be off-limits for the poor who will continue to be served with feature phones on 2G/3G networks of the incumbents. Trai is ensuring such operators are paid at least 6 paisa a minute of IUC for receiving mobile calls to their outdated or “yesteryear technology”.

In 2017, when TRAI had fixed the IUC expiry date as January 1, 2020, for M2M calls, it had given strong reasons in favour of moving to the BAK regime — both in terms of cost and traffic balancing.

As for cost, in Para 42 of its order, TRAI had said, “Cost of terminating the call in all IP (internet protocol) network is close to zero (0.11 paisa per minute).” It means you can make nine minutes of calls, and that costs just 1 paisa, which includes 15 percent profit on investments made by an operator.

Similarly, in at least five other paras of its order, TRAI had repeatedly stated that the cost of call is practically zero. In Para 49, TRAI stated, “The cost of terminating the call in packet switched network is so small.” Para 51 said additionality of costs for receiving calls, in the strictest sense, is close to zero.

There is more. According to Para 61, “it is not disputed that the cost of voice turns out to be fraction of a paisa per minute”. Para 63 is clear that “(the) BAK regime would encourage operators to invest in new technology and bring down the cost of voice services close to nil”.

Para 65 stated: “There is hardly any cost in termination of the call in packet-based technology.”

TRAI is clearly of the view that IUC makes telecom services expensive for the poor who use feature phones. In Para 63, the regulator talked about IUC creating a peculiar situation where cost of services for low-cost feature phone users would actually end up being higher than that of smartphone users.

In Para 56, TRAI said, “IUC becomes an effective floor for retail tariffs” and had then opposed its continuation.

Generally, the government fixes the floor price called Minimum Support Price (MSP) for farm produce for benefits of farmers. It seems TRAI now wants to extend a similar benefit to rich telecom companies with continuation of IUC, which is nothing but a floor tariff!

On traffic balancing, TRAI, in Para 59, said, “In fact, BAK will be a catalyst for traffic symmetry.” Its considered view was “BAK gives telecom operators appropriate incentives to serve their customers efficiently and brings market discipline to competition”.

In the same para, TRAI rubbished the demand of the incumbents for continuing with IUC till traffic balance is achieved. It said, “Evidently, the demand for cost-based IUC, till there is traffic symmetry, is a vicious circle. Only by removing the cost-based IUC, this vicious circle can be broken.”

Para 50 offered more insights. TRAI then said, “Reducing termination rates has benefited consumers and enhanced competition. Going the full distance i.e. reducing terminating rates to zero… would help in immediately realising these benefits… will encourage flat rate billing and time differentiated charges… will improve capacity utilization and will be in the interest of consumers. It will also reduce the inter-operator off-net traffic imbalance.”

Let’s turn to Para 51. TRAI said, “When a TSP (telecom service provider) establishes a network, it is not only for sending but also for receiving calls. The operator, therefore, does not do anything special or extra to provide for receiving another service provider’s calls… Thus, additionality of costs for receiving calls, in the strictest sense, is close to zero… Measuring costs caused by another service provider’s incoming calls is more challenging… therefore, a case for introduction of a Bill and Keep regime.”

It’s clear from Para 54 that the elimination of IUC will result in direct benefit to customers through lower tariffs. Furthermore, Para 63 talks of the BAK regime encouraging operators to invest in new technology and bring down the cost of voice services close to nil.

Thus, TRAI had clearly spelt out the reasoning for getting into the BAK model from January 1, 2020. Now, let us see what are the costs involved in setting up of the entire network for receiving other operators’ mobile calls (off-net calls).

When TRAI had worked out the cost of 6 paisa in 2017, it said the cost of receiving off-net calls is Rs 1,467 crore and total off-net incoming minutes are 24,991 crore. By dividing the two, we get 6 paisa per minute cost. This Rs 1,467 crore cost is the total cost of all the operators for a full year, which means Rs 367 crore per operator in a year.

One wonders, is this big fight by the incumbents just for saving this Rs 367 crore or is there a bigger plan to create obstruction in healthy competition?―Money Control