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Pankaj Sharma
Chief Corporate Affairs Officer,
Telenor India Communications

Lower Mobile Termination Charges – Why Relevant for Indian Market?

Despite having over 1 billion mobile connections, still substantial rural population is unconnected. To bridge this digital divide faster, the government and the Regulator have immense role in making mobile communication a success with their forward-looking policies and commitment toward world-class quality of service at affordable tariffs. Now mobile phone is evolving as the first and primary interface for consumers, especially in mass markets, to access various digital services such as e-governance services, e-commerce, utility applications, digital authentication, entertainment, infotainment, payment platforms, etc. There is hardly any aspect of our life that is untouched by this wireless communication revolution.

The Regulator should ensure healthy competition among operators – big or small, new or old – and affordable services for consumers by adopting best optimal methodology to determine the mobile termination charges (MTCs).

MTC is a key element of IUC (interconnection usage charge) framework which keeps competition healthy and acts as a boost for TSP to facilitate connecting calls from other networks between their consumers. These charges are paid by one TSP to another under commercial and technical arrangements. Initially, MTCs were between 15 and 50 p/min depending upon the distance of terminating call. Later in Feb’04, the rate was fixed at 30 p/min, removing distance slabs, which was lowered to 20 p/min in Apr’09. TRAI again lowered the rate to 14 p/min for mobile and nil for fixed line services after six years in Mar’15. To keep pace with technological and market changes, fresh consultation is in progress to decide whether MTC should be cost-based or bill-and-keep (BAK).

Cost-Based Model

There are various cost-based (equal to cost) methodologies for calculating MTC. It is always challenging for Regulators globally to adopt the best approach favorable to local market conditions, and economically benefiting the consumers. TRAI has also adopted cost-based approach and applied the most-suited cost model to the Indian market striving to maintain the balance between adequate compensation to terminating networks and affordability of services to end consumers. Going forward, it is important that MTC should be fixed at optimum level and any higher or lower (zero) charges will have significant bearing on this two-sided termination market where operators are both buyers and sellers of cross-network mobile traffic and incur cost and receive revenues from this traffic. The Regulator should ensure that the method chosen should best serve inter-operator competition and is economically efficient, which in turn supports long-term market development and sustainability, benefitting the consumer. The deployment of modern energy-efficient nodes by operators in their networks, resulting into cost efficiency, should also be factored in the estimation of MTC. As a regulatory best practice, Competition Commission of India has also adopted the incremental cost-based method for the purpose of calculating the cost of goods and services to maintain competition efficiency in the market.

BAK Approach

At this point in time, when traffic imbalances are still significant and 4G networks are yet to mature enough to make IP-based voice telephony popular among consumers, adopting BAK approach for termination charges or delinking from tariffs will not be a correct path toward next level of interconnection reforms in India. If it happens, it will lead to flood of below-cost tariff offers in the market and will have direct impact on bottom line of TSPs leading to severe impact on the financial viability, future investments, and sustainability of the entire telecom industry. It will also pave the way for exponential increase in the unsolicited SMS/calls and will have no incentive for operators to carry calls of other operators, impacting quality of service and consumer satisfaction.

To sum up, India still has a large base having an inclination toward voice calls, and to serve them in the most affordable manner, it is important for the Regulator to continue to use cost-based approach in estimation of termination charges for both mobile and fixed-line services. It will not only enhance economic benefits for the consumers but also further fuel the growth of the sector and act as a catalyst to increase rural tele-density for bridging the digital divide.

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