Cut in IUC will lead to large-scale shut down of sites: Vodafone

Vittorio Colao, Vodafone Group CEO
Before the country’s telecom regulator announces new interconnect usage charges (IUC), UK-based telecom major Vodafone has warned that any reduction in charges would lead to large-scale shut down of mobile sites, diminishing coverage in rural areas.

IUC, which an operator pays to another for completing calls, currently stands at 14 paisa per minute. The Telecom Regulatory Authority of India (Trai) is in final stages to announce new rates, and according to sources, the charges are likely to be lower than 14 paisa. 

Incumbent operators, including Bharti Airtel, Vodafone and Idea Cellular, have been at loggerheads with new entrant Reliance Jio over the issue. The incumbents want IUC to be increased or retained at the current level, whereas Jio wants the charges to be brought down to zero.

“The existing rate of 14 paisa is already below cost. This damages the economic case for connecting rural areas because traffic is largely from urban to rural, with little call origination revenue in rural areas. Even at the present MTC (mobile termination charge) level, 15-20 per cent of our sites run at a loss. Any reduction in MTC risks large-scale site shut down of already unprofitable sites in rural India and this would greatly diminish the population coverage of mobile telephony,” Vodafone Group Chief Executive Officer Vittorio Colao has said in a letter to Telecom Minister Manoj Sinha. Colao has also sought that the inter-ministerial group (IMG), formed to address the financial stress in the sector, should recommend a reduction in the interest rates for deferred spectrum payments to 6.25 per cent and an increase in the period of payment for spectrum.

Vodafone also refuted the claims of Jio that it has a cost advantage in the region of 70 per cent compared to the established 2G, 3G and 4G operators. “There is no evidence — either Indian or international — to support such a claim. If this was indeed true, there would be a number of 4G-only operators emerging around the world, which is not the case,” the letter said. Vodafone added that the costs of the new entrant are higher than any other operator, whether in terms of employees (approximately double that of Vodafone India when including outsourced employees) or infrastructure (significant sole tenancy approach versus the tower-sharing approach adopted by other operators).

Colao said Jio was assuming that it can recover its costs many years into the future. 

However, continued under-pricing of services leads to a rapidly increasing cost per subscriber, recovery of which will require higher average revenue per user in the future, which is unfeasible and unrealistic. “It is undesirable for a critical core industry like telecom to be regulated based on the ambition of a new operator with no history of financial sustenance,” Vodafone said.

The letter added there should be no further reduction in IUC as it would destabilise the sector, defeat government rural coverage objectives and cause huge inconvenience to citizens, particularly in rural India.

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