The Telecom Regulatory Authority of India has reduced Interconnection charges for mobile-to-mobile calls to 6 paise per minute, starting October 1st 2017, and for it to be done away with completely by 1st January 2020. This is a 57% reduction from the previous interconnection charge of 14 paise, and will negatively impact large telecom operators.

Interconnect charges are charges paid by the telecom operator of the calling party, to the telecom operator of the recipient of the call. This is called the “calling party pays” regime, and is meant to incentivise interconnection between telecom operators, and ensure that users of one telecom operator are able to call anothers. A couple of things:

  • Markets without telecom operators interconnecting would mean that users would be able to call only their own telecom operators customers, and would need to keep multiple SIMs and/or handsets to make calls.
  • Markets where market forces, and not the regulator, determine interconnection charges, would lead to telecom operators trying to create a major disincentive for calling people on another network, and discriminatory charges against call-recipients of another network.

The alternative to interconnect charges is the Bill and Keep regime: if you’re making a call, then your telecom operator keeps all the money.

Remember that one demand of telecom operators during the Net Neutrality debates was to seek interconnect charges from Internet companies. In 2012, Jagbir Singh, Director, Network Services Group, Bharti Airtel asked for interconnection charges for data, saying: “Today, Google, Yahoo! and others are enjoying at the cost of network operator. We are the ones investing in setting up data pipes and they make the money. There is interconnection for voice then why not for data”…”They are completely bypassing the telecom operator. There should be a fair revenue share”. At the Mobile World Congress the same year, Sunil Bharti Mittal called for a discussion on IUC applicable to Internet companies, as did RCOM at the Net Neutrality seminar on August 8th 2014.

Now, even telecom interconnection charges will be scrapped.

Who does Interconnection benefit?

It’s a regime that typically benefits the largest telecom operators. The more the customers on your network, the more they are likely to call others within the network. It’s also more likely that your network will receive more incoming calls from other networks.

IUC did benefit customers: the “calling party pays” regime allowed for a situation where incoming calls were made free.

But the benefit, it seems, is for the telecom operator, whose customers make the most calls: Airtel said that the cost of a call for them is 35 paise, which why Airtel suggested that each external call which terminates on its network is a loss-making proposition, when they get paid only 14 paise for it. With IUC gone, profitability for Airtel will be dented.

Where are we headed?

As recently as 5 days ago, Idea Cellular had talked about IUC for VOLTE calls, and therein lies the issue. Calling is shifting to data, and there are no interconnection charges in data. Telecom used to charge for what you’re using (voice, SMS, data) and how much of it you’re using. The data regime only involves being charged for how much data you’re using, because of Net Neutrality.

If by 2020, most calling is on data, having an interconnection regime doesn’t make sense anyway. The TRAI is moving towards a bill and keep approach to enable this.

What they’re saying about IUC

1. Airtel is disappointed, but makes no mention of next steps:

“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 favour.

The sharp drop in the IUC rate will only help transfer part of its cost to other operators, thereby further worsening the financial health of the industry. As part of an industry, which continues to be a critical driving force behind the economic growth in the country, we are genuinely dismayed by this decision.”

2. Vodafone’s response suggests isn’t specific about what options it is considering, but we’re wondering if legal options are a part of their plans

“We are disappointed with this decision and are now considering our options in response to it. The Indian telecoms industry is already experiencing the greatest period of financial stress in in its history. This is yet another retrograde regulatory measure that, unless mitigated, will have serious consequences for investment in rural coverage, undermining the Government’s vision of Digital India.”

Remember that Vodafone’s Vittorio Colao had pointed out earlier that this will impact the “economic case for connecting rural areas because (call) traffic is largely from urban to rural, with little call origination revenue in rural areas”, adding that any more reduction in termination charges might lead to a large scale site shut-down of “already unprofitable sites” in rural areas. Now termination charges will be zero.

3. COAI: Rajan Mathews, Director General of the COAI, says that incumbent telecom operators have no choice but to go to court on this issue, saying that they’re likely to seek an injunction.

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We’re awaiting statements from Idea Cellular and Reliance Jio.