TRAI's Decision Disappoint Airtel, Vodafone

by CXOtoday News Desk    Sep 20, 2017

telcos

The Telecom Regulatory Authority of India (Trai) has announced over 50 percent slashing of interconnect usage charge (IUC) to six paise with effect from 1 October and abolished it all together for all local calls starting 1 January 2020. This came as a big blow to older telecom firms, such as Bharti Airtel Ltd, Vodafone India and Idea Cellular ltd, and turned out to be a potential boost to newcomer Reliance Jio Infocomm Ltd.

A cut in IUC means Airtel, Vodafone and Idea will now need to recover a greater share of their costs from their customers, but leave alone being able to raise tariffs, they would most likely be forced to drop tariffs to counter Reliance Jio. 

This is a big win for Reliance Jio as it is estimated that Jio’s net spend on account of IUC to be in the region of Rs7,000-7,500 crore annually. On the contrary, large incumbents such as Bharti Airtel Ltd, obviously, stand to lose a large chunk of this revenue stream, which contributes about 14-18% of their operating profits.

Telecom leaders Airtel and Vodafone has termed the new interconnect charges (IUC) set by the telecom regulator as disappointing, retrograde and non-transparent.

“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,” Airtel said in a statement.

“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,” Airtel added.

A Vodafone spokesperson said, “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 its history. This is yet another retrograde regulatory measure that will significantly benefit the new entrant alone while adversely affecting the rest of the industry as a whole.”

Unless mitigated, this decision will have serious consequences for investment in rural coverage, undermining the Government’s vision of Digital India, the spokesperson said.

Trai believes that the reduction of the IUC, levied by a telecom operator for terminating a call from another telecom firm will benefit consumers and boost competition.

On its website, the regulator said that the move to the so-called Bill And Keep regime (where no interconnect charge is paid by a telecom firm to another) would “encourage flat rate billing and time differentiated charges, both of which will improve capacity utilization and will be in the interest of consumers”.