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Vodafone CEO Vittorio Colao writes to Indian govt asking for “urgent intervention”

Reducing Interconnect Usage Charges (IUC) will destabilize the telecom sector, defeat government rural coverage objectives and cause inconvenience to users, Vittorio Colao, Vodafone Group CEO said in a letter to the DoT and Ministry of State for Communication. Colao sought “urgent intervention” from central authorities asking for a reduction in spectrum payments while opposing the reduction of termination charges.

Telecom companies and the regulator TRAI have been discussing the issue of IUC charges at a time when voice calls are being handed out in bulk for free. When a subscriber initiates a voice call, his/her telco pays IUC charges in form of ‘termination charges’ to the other telco on whose network the call is received.  TRAI currently charges IUC on the basis of the type of network the call originates or terminates on:

Airtel, Idea and Vodafone (existing telcos), earlier demanded that the IUC charges be increased to 30-40 paise per minute while Reliance Jio wants it fully scrapped. Colao in his letter to the ministry mentioned that Vodafone is “seriously alarmed to see reports that the regulator is considering a reduction in MTC”. He said that “few operators” like itself have invested heavily into connecting both rural and urban areas and that any drop in termination charges will “destroy” investments made by telecom companies.

“Around 15-20% of Vodafone’s cellular sites run at a loss”: Vodafone CEO

Vodafone receives 14 paise per minute for every call terminating onto its network. However, Colao said that this is below the cost of the company’s investment. “This (14 paisa per min charges) damages the economic case for connecting rural areas because (call) traffic is largely from urban to rural, with little call origination revenue in rural areas.” With the current rates, 15-20% of Vodafone’s cellular sites are running at a loss, Colao added.

He furthers pointed out that any more reduction in termination charges might lead to a large scale site shut-down of “already unprofitable sites” in rural areas. Colao instead asks for setting termination costs based on prior investments made by companies, but he does not mention any specific rates in his letter.

Other issues raised by Colao in his letter:

  • Method of interconnection billing: Interconnection charges are billed to users under the current calling-party-pays (CPP) method: A subscriber making a call pays for it to his telco (minutes or seconds billing), and the telco, in turn, pays termination charges to the other telco, where the call terminates on. CPP was initiated in 2003. Prior to that, operators used to follow a Bill and Keep (BAK) regime wherein the receiving caller also pays for an incoming call. However, Reliance Jio had earlier suggested a billing regime which includes a mix of both during. Reacting to this Colao said “nowhere in the world does Bill and Keep (BAK) and CPP regime co-exist as is being proposed by the new operator. In BAK regimes, the consumers pay for incoming calls, which is unrealistic for Indian consumers.
  • Underpricing of services are increasing operational costs: “Jio has assumed continued growth of an implausible level of paid traffic on its network. However, the present traffic levels are a result of extreme promotional activity and generated by incurring huge losses,” Colao said in his letter. Free calls and data according to him has led to “underpricing of services” which has further increased the cost per subscriber. Recovering these costs “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,” he added.

Also Read: Some telcos want interconnect charges to be increased; Jio wants it scrapped

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