IUC cut ignores spectrum cost: Idea Cellular

The Telecom Regulatory Authority of India’s (Trai’s) decision to cut interconnection usage charges (IUC) to 6 paise per minute ignores the high cost of spectrum borne by telecom operators, said Idea Cellular in a statement on Thursday. 

On Tuesday, Trai had cut IUC — paid by an operator on whose network the call terminates — by 57 per cent from 14 paise per minute. The new rate is effective from October 1. Incumbent operators are upset with the Trai for using a new method to calculate long-run incremental cost (LRIC), which determines the price to be paid by competitors for services to be provided by an operator. The mobile termination charge or IUC is one such.

“The authority’s decision… will negatively impact the already stressed financial health of the sector,” said Idea.

Bharti Airtel, the largest mobile operator in the country, is also against the cut in IUC.

“The IUC has been arrived at in a completely non-transparent fashion and 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,” Airtel said. Incumbent telecom operators have long been protesting against Reliance Jio’s free calling and cheap data services. 

Idea said at present more than 900 million consumers in India rely on established 2G /3G/4G (non-VoLTE) networks for accessing voice services. A majority of these users are located in the rural heartland, and are dependent on the enormous mobile telecom infrastructure investments, to stay connected. A large swathe of these rural sites are predominantly utilised for receiving incoming calls, and even in the erstwhile IUC regime were being subsidised by existing operators. The revised IUC rate further jeopardises both rural coverage and connectivity. 

Analysts at Deutsche Bank led by Srinivas Rao said unlike the current methodology, Trai’s previous IUC rate of 14 paise per minute prescribed from March 2015 was based on LRIC+ methodology, which included the impact of spectrum costs. The regulator used subscriber data for December 2016, traffic data for December quarter of 2016 and busy-hour data for the period February 1-7, 2017 as a basis for calculation of the mobile termination rate. They believe that this period covers the “free launch offer” from Jio, which would have distorted these metrics. Idea said no economic rationale has been provided to justify how an already “lowest in the world” IUC rate of 14 paise per minute, has been further lowered by nearly 60 per cent. No thought had been spared as to how Indian regulation can possibly arrive at starkly dissimilar answers to similar calculations as in the rest of the world, including the European average settlement rate of 1.27 eurocents per minute (approx. 98 paise per minute), more than 16 times higher than the prescribed IUC rate of 6 paise per minute in India, they said.

Reliance Jio, however, disagrees while denying any gains from the cut in IUC.

“Implementation of Bill & Keep regime will help in making services more affordable for Indian customers. It should have been implemented in 2014 as envisaged in the 2011 Report submitted by TRAI to the Hon’ble Supreme Court and will be six years too late,” Jio said in a statement on Wednesday.

It adds that Jio has always offered free voice services to its customers. There is no question of any advantage from the new IUC regulation to Jio as it has already passed on all the benefits to customers. We deny any benefits to Jio. At a time when the world is moving towards IP-based technologies, cost of voice has come down to a fraction of a paisa and the customers should enjoy this advantage, the firm said.

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