Telcos' clash: Erase call termination fee, says Jio; others want it doubled

Under inter connect charges, those who get more calls benefit at the expense of those who receive it

There is little new in the demands telecom companies made at their meeting with the sector regulator on Tuesday to decide on what is known as inter-connect charges (IUC). 

While Airtel, Vodafone and Idea asked for doubling of the rate, or more, Reliance Jio asked for its complete removal. Their hardened positions, however, makes it clear to Telecom Regulatory Authority of India (Trai) Chairman R S Sharma that there will be no compromise among them, without sorting of their other contradictory pain points.

The new element in the once hugely successful business sector is the re-emergence of friction at historical levels. When it had happened in 1999, the then government had framed the new telecom policy. When it again happened nine years later in 2008, it led to the so-called 2G scam. And now, nine years later, the friction has again surfaced. 

While the number of years is a coincidence, the potential to create disturbances in the policy is not. The losses for most of these companies are unexceptionally high. At the same time, the financial stake for the government from them is also high. 

From the successive rounds of auctions, the government has so far collected over Rs 3.6 lakh crore, which is close to 25 per cent of its total non-tax revenue in the past seven years, a report by rating agency Icra notes.

What is inter connect charges?  

Whenever a mobile voice call from one network to another network is made, the company where the call originated pays this charge to the recipient company. This is known as the IUC, and it has been in existence under section 11 of the Trai Act since 2003. That was the year the regulator scrapped the system of making the recipient of a mobile phone call pay for the cost. 

Telecom companies instead moved to charge one another and build the cost into their tariff plans. Under this system, those who get more calls benefit at the expense of those who receive it, so older networks like Airtel and others earn more. Reliance Jio sees it as a revenue dampener.

About a year ago, Trai moved a consultation paper asking for the charges to be clipped, and that created a furore. Going by the competition theory, there is a reason to clip it, since it encourages companies to milk on their past investments without any incentive to cut costs. 

It is like the higher revenue the government used to pay to older fertiliser companies, known as gold plating. The higher the costs, the greater the demand for higher IUC. 

At the same time, Sharma has not been able to cut other costs for older companies — licensed telecom companies need to pay to the government about 8 per cent of their total revenue from all the lines of business they might be involved in. 

It is in addition to the price they pay to buy spectrum, its usage and other things, but they have no ability to partner with any content player to earn additional revenue. Could the government at this stage offer a grand bargain for the companies? This remains to be seen.