Telecom Experts Rue TRAI’s ‘Nail In The Coffin’ Move
Telecom experts disappointed with TRAI’s IUC cut.
The telecom regulator’s decision to cut interconnect usage charges by more than half next month and completely abolish it by 2020 will put pressure on the sector that is already financially stressed, industry experts told BloombergQuint.
The move stands to benefit newest entrant Reliance Jio Infocomm Ltd. at the cost of incumbent market leaders.
An operator pays IUC whenever a rival provides access to its network to complete a call. Larger players like Bharti Airtel Ltd., with deeper rural networks and premium pricing, typically see significantly higher traffic of incoming calls than outgoing, according to a report by Kotak Institutional Equities in July. Which means, they are the net earners of interconnect charges. An aggressive player like Reliance Jio, with free voice calling, is a net payer, a reason why it wanted them abolished.
‘Nail In The Coffin’
The Telecom Regulatory Authority of India's decision is a nail in the coffin for incumbent operators, said Sanjay Kapoor, former chief executive officer of Bharti Airtel Ltd.
“Obviously this causes a big dent to the incumbents”, Kapoor said.
When you look at the way this business is being run in the market, we have the lowest prices, we have the highest amount of data and minutes spoon into that. The realisation and profits are not resulting in [better] consumer experience. There’s not enough money on the table to reinvest and improve that.Sanjay Kapoor, Former CEO, Bharti Airtel
He added that in the short run, this will continue to be a disruptive factor till the imbalance between incoming and outgoing calls dissipates after new operators gain more call traffic.
According to JPMorgan, currently nine calls terminate on Bharti Airtel’s network for every one call for Reliance Jio.
‘Back-Breaking’
This move is premeditated, and not an impartial decision, said telecom expert Sanjeev Aga. He questioned the TRAI’s rationale in arriving at the 6 paise figure.
Even the spectrum cost alone, if you allocated over voice, it will be more than 6 paise. So there is no calculator in the world, there is no regulator who can arrive at this through any science. But here it is 6 paise.Sanjeev Aga, Telecom Expert
Incumbent telecom operators were already burdened with stress, and this would be back-breaking for them, he added.
Aga said that this was a sad day not only for the telecom industry but also for the economy. “For every two good decisions by the government, we get one horrible decision,” he said.
‘Tricky Game’
The issue of fixing interconnect charges has always been a tricky game, as you have to balance the interests of an incumbent operator with that of a challenger, said Rahul Khullar, the former chairman of TRAI.
When the traffic is so badly skewed against the incumbents, and the traffic is all going to be dumped on the incumbents’ networks, then you cannot move or transition to a zero IUC regime.Rahul Khullar, Former Chairman, TRAI
In this case, reducing IUC means that the income of the incumbents will be hit, while the costs for the challenger Reliance Jio will fall, Khullar explained.
‘Disastrous Move’
This “dramatic reduction” in call connect charges will definitely end up in the court for adjudication, said Rajan S Mathews, director-general of the Cellular Operators Association of India. He pointed out that the previous order on IUC is still pending in court.
Matthews said that this was “a disastrous move” for the incumbent operators.
Clearly there is going to be a beneficiary to this reduction, and a substantial loss to the other major operators. So you can see why this will end up in the court.Rajan S Mathews, Director-General, COAI
The “other operator” stands to gain Rs 2,000-3,000 crore, while the industry will lose around Rs 4,000-5,000 crore, Mathews added.