Why India’s Telecom Regulator Wants To Phase Out Call Connect Charges By 2020
TRAI chairman says call connect costs will be insignificant by 2020.
The Telecom Regulatory Authority of India is looking to phase out a fee that operators pay each other for handling cross network calls by 2020 as the adoption of new technology by then would make that cost “insignificant”, according to its chairman, RS Sharma.
In an interaction with BloombergQuint, Sharma explained that all major operators have committed upgrading to internet protocol (IP) based networks, where even voice calls are made using mobile data.
In an IP-based network data is the new raw material. You construct voice calls, music, pictures, and videos using mobile data. In that world, the cost of handling a call becomes a fraction of a paisa. One megabyte of data can handle about four minutes of quality call.RS Sharma, Chairman, TRAI
Sharma said that by December 2016, about 11 percent of the country’s network had shifted to being IP-based. By now, that figure should be roughly 15-16 percent, he added. Reliance Jio Infocomm Ltd. already makes use of VoLTE (voice over long-term evolution) technology while the largest operator Bharti Airtel Ltd. recently switched over in some circles.
Every major operator has committed to convert to the IP-based network in the near future.RS Sharma, Chairman, TRAI
Last week, the TRAI halved the interconnect usage charge to 6 paise from 14 paise. Incumbent operators cried foul saying the decision favours the new market entrant Reliance Jio, which had already disrupted tariffs in the industry. They argued that more calls end up on their networks from Reliance Jio, pushing costs higher.
Sharma said the issue of who the lower interconnect charge favours or does not favour is not one that the regulator is concerned with. “We are concerned with computing the cost and we have done so,” he said.
If you have been compensated for cost of doing something, then how does it make a difference if the number of calls on your network are more or less. Because the cost is coming to you. If you handle one minute you will be paid 6 paise and if you handle 100 minutes you will be paid 600 paise. In what way does it harm you? It could have harmed you if you were being paid less and it could have profited you if you are being paid more. So, that is exactly what you are spending and getting.RS Sharma, Chairman, TRAI
Watch the full interview here.
Here are edited excerpts from the interview.
Can you explain to us why has this became so controversial, despite the many representations that many incumbent telecom companies made to you for wanting the low IUC that you decided to go ahead and do so?
IUC is a charge which telecom company ‘B’ pays to handle telecom company ‘A’s calls. This is agreed and accepted that this charge should be based on cost, that how much is the work the company does for handling a call. So, essentially, TRAI floated a consultation paper in August 2016 and we went through a process of about 13 months and we heard all the stakeholders, every telecom service provider and other stakeholders that is the customers.
We had open house discussions and we had a workshop too where every telecom service provider presented their arguments. Then TRAI, based on all these inputs, went ahead and computed the actual cost which is incurred in handling the call which came to a figure of 5.9 paise which rounded it off to 6 paise. Then we issued the regulation on 9th September 2016. The regulation has explanatory memorandum where it contains 32 pages of explanation which answers to that question as why TRAI took the review and other questions. Then it has the cost models and data sheets for computing this and there are no assumptions in it. So, TRAI is duty bound to compute the cost and fix the IUC charges.
Does this argument not ignore the tremendous capital investment that existing telecom companies have already made in their existing networks? Does it not favor the new player who might be entering just in the last few years and have the advantage of the newer network?
No, not at all. This argument does not ignore the fact that the existing telecom players have made investments. It certainly does not. It reimburses the cost of handling their calls. So, in what way it favours the new player, I don’t understand. The payment to the new or the old operators is done on the basis of actual work done by them. Why should that be an issue? The issue as to whom its favor and whom it does not favor is not the one which we are concerned with. We are concerned with computing the cost and we have done so.
Can you explain to us whether the historic cost that the incumbent players has put in has been accounted for that 6 paise cost?
In the explanatory memorandum, we clearly explain as to why the historical cost and what kind of costs are to be included and what kind of costs are not to be included. So, the model which we have used, the common costs are not to be included and that’s the way it has gone. So, therefore to say that you have not included the common cost, there are adequate reasons for that which is explained in the memorandum.
Incumbents have said that if TRAI wants us to move to the new network and this is one way of doing that then maybe they are ignoring the fact that the cost of termination is depended on the smartphones that the consumer use and the penetration of VoLTE-based smartphone is less than 10 percent in this country. The way the cost has been arrived at and the way you look at the usage of phones themselves all of this not add up to TRAIs position.
Unfortunately, I must say that there are established methodologies and we have not invented a methodology. LRIC is a standard methodology used all over the world and we have used that methodology. We have plugged in that methodology, the cost sheets and the data provided by telecom service providers. So, nothing has been ignored and added to the standard methodology which is available.
The other question is being raised about the zero IUC regime is the traffic asymmetry that is currently being experienced in this industry. Jio makes more calls than it receives from the incumbent players. Several research and brokerage companies have also raised this. So, the suggestion also is the EBITDA is taken from the incumbents and passed on to Reliance Jio.
IUC is computed on the basis of the particular methodology where cost sheets and everything is there. Obviously, it will benefit and harm someone. That’s not the issue here.
For the traffic asymmetry issue, if you have been compensated for cost of doing something, then how does it make a difference if the number of calls on your network are more or less. Because the cost is coming to you. If you handle one minute you will be paid 6 paise and if you handle 100 minutes you will be paid 600 paise. In what way does it harm you? It could have harmed you if you were being paid less and it could have profited you if you are being paid more. So, that exactly what you are spending and getting.
Whether it is the cost calculation done by the TRAI or whether the analysis of working out the cost, they suggest that interconnect cost for their end is between depending who you talk to 25-40 paise. They say we were opposed to reducing the IUC from 20 paise to 15 paise. Can you explain why you don’t see eye-to-eye on this?
We have provided the detailed cost sheets and if there is any error in the cost sheets then we are ready to accept those errors and we will rectify our orders. The data and cost sheets are there. If somebody says that your cost sheets are not good then they are questioning the model itself. We, as a regulator, have taken a call that this is the model which we have applied and we have given adequate reasons for applying that model and this is the results which the model provides.
Why something as technical as the cost seems to have so much controversy surrounding it? Why is it that your methodology of cost is not agreeable for the incumbent players? Many arguments have put and whether these arguments held with you or not?
All these issues of why this particular methodology and other related questions are all there. Somebody not agreeing to it or somebody questioning it, what can be done about it?
You don’t agree that the cost is too little and you don’t think that it might encourage predatory pricing as is the case is made out by incumbent players?
Not at all because 6 paise has been computed in the most transparent way. The computations and the data input cost are there for everyone to see. If two plus two is four, it is four, whether I say it or someone else says it. So, why would somebody say that they don’t agree. They may not agree with the methodology. But if you don’t agree with the cost sheets, that’s something I don’t understand.
Can you explain you think the best-case scenario by 2020 will be zero IUC?
All the networks are going to become the IP-based networks. Already, the back ends of all the telecom service provider networks are IP-based. We have seen that major operators in this country already starting IP-based systems front ends. Therefore, in an IP based network it’s all data and data is the new raw material. You construct voice, music, pictures, videos, etc. from the data. In that world, the cost of handling a call becomes a fraction of a paisa. For example, one megabyte of data can handle about four minutes of quality call. In a digital and in an IP network, the voice become an application on the top of the data. So, the cost becomes very insignificant. Therefore, the bill and keep regime, if the bill is itself close to zero then it’s better to be kept rather than to be given to another guy because it is very insignificant. So, that’s why we feel and we are conservative in it, that from January 2020 the networks will converge to IP based networks which the voice could be reduced to merely an application of data. Therefore, the cost of handling calls will become more or less zero. That’s why we have given that timeline.
What percentage of the incumbent telecom networks are IP based networks because the remainder could have to convert to IP based network?
In my estimation, it will be sooner than that. Nevertheless, we have kept that after one year of operations of this regime we will review it and take a call one way or the other. So, if the estimates do not come out to be true then we will be able to make the mid-course correction.
Of the incumbent networks, what percentage could be IP-based?
Overall about 11 percent. It is the figure of December 2016.
And rest 90 percent will be converted to IP based network in next three years?
No. Every incumbent and operator is at different stages of development. So, I can’t give you operator wise figures. So, it could be 89 percent as 11 percent is IP-based. Today, if you see it should be 15-16 percent. Every major operator has committed to convert to IP based network in the near future which they are going to do so.
In very few countries or almost no countries in the world does the calling party pay regime and the bill and keep regime co-exist. So, these two regimes do not co-exist in most countries in the world. What is your study on international practices?
Let me answer that question not from the world experience, because we don’t need to be guided by in the world. We are a mature telecom market and one of the largest and vibrant market in the world. We need not to be guided and compared with others.
Bill and Keep is a commercial arrangement. In the explanatory memorandum, we have said that the cost of handling a call will come down to close to zero as data is the new raw material out of which you make various products. So, Bill and Keep has got two terms, one is ‘bill’ and another is ‘keep’. So, if the bill itself becomes zero or close to zero then you better keep it because the cost of realizing the bill and the logistics and billing is not worth it. So, bill and keep is not, as a business part in the CPP regime or otherwise. Even if you continue with the principal of cost based payments then in an all IP networks this bill itself will become close to zero. That’s what we are saying.
On the one hand we have stress in the sector and in the other hand we have potential reduction in the revenue for the incumbent players. It is at least their allegations and calculations which you may not agree. Do the two square? They are also expected to go to courts. Do you expect this to become long litigious few years?
I am not very sure if IUC has any connection in the stress in this sector. Whether it increase or decreases the stress, I don’t see any connections. Because if the IUC is a charge - money that is reimbursed to you as a telecom operator for handling someone’s call - and the payment is based on the work done then you have been compensated for whatever work you do. So, in what way it increases the stress is not clear to me. I think and everyone agrees that IUC charges cannot be a profit vertical for any company and should not be. Therefore, reducing the IUC and reducing it just to extent of that it compensates the cost, this does not really contribute either positively or negatively to the stress of the sectors.
As for the second part, well, in this country everyone has the right to go to court. Everybody has the legal right to approach to appropriate legal forum. Therefore, if the telecom service providers go then I have no comments to offer on it. They have the right and we also have the right to defend the TRAI’s stance in the court.
Do you consider that if they make further representations to the TRAI, you might consider the 6 paise regime? Is there any scope at all or is this 6 paise regime here to stay?
This particular regulation has been made after due deliberation and after huge amount of consultation and in a truly transparent manner. So, therefore there is no question of changing it.