Mixed signals

IUC extension is welcome, but Trai should take a holistic view

The decision by the telecom regulator to extend the current regime of 6 paise per minute termination charge or IUC (interconnect usage charge) for wireless calls ending on a different telco’s network for another year is a welcome move. It would help improve the cash flow of the incumbent operators, which have been complaining that some of the decisions taken by the Telecom Regulatory Authority of India (Trai) have only helped the newest telecom operator. But the regulator needs to iron out some more creases. For example, while extending the current regime, Trai has announced that zero IUC or the BAK (bill and keep) regime will be implemented in January 2021. Although telcos will get a year to transition to the new system, setting a date for zero IUC without any review condition ahead of the rollout seems ill-planned. 

Before its implementation, Trai must make sure that the timing is right for shifting to a zero IUC regime. One of the factors guiding Trai to fix termination charges is traffic symmetry, a term used to describe the ratio between outgoing and incoming calls. Following consultation with industry stakeholders, Trai believes that by the end of 2020, traffic symmetry will be achieved and, therefore, zero IUC would be feasible from January 2021. But at a time when the telecom industry is bleeding and, on top of that, has received an adverse court order to pay up adjusted gross revenue (AGR) dues of around Rs 1.4 trillion (with interests and penalties), the regulator should not be in a hurry to abolish the interconnect charges. 

In fact, the Trai decision to extend the IUC must be seen in the context of comments by top companies. Vodafone Group Chief Executive Officer Nick Read had told reporters in a post-result discussion that the Indian venture was reaching a liquidation-like condition. Following that, Vodafone Idea Chairman Kumar Mangalam Birla had said it might be the end of the road for the telecom venture if there was no help from the government. Even Bharti Enterprises Chairman Sunil Mittal said in recent interactions that these were the most difficult times for the telecom sector.

IUC has been a controversial subject ever since Reliance Jio launched its service with free calls three years ago. In 2017, Trai had cut the interconnect charge from 14 paise per minute to 6 paise per minute, a move that may have hit the industry by around Rs 5,000 crore a year. Incumbents argued that the regulator’s decision to slash IUC by more than half helped Jio subscribers make calls to those on other networks at a much lower price, while enabling the company to keep disrupting the market with predatory tariff. Another grudge that incumbents expressed against Trai’s calculation of IUC was that some key components such as capex and spectrum charges were not considered. This is an opportunity for Trai to show its fairness. And, any change in the IUC regime should come after a proper assessment of the market. The point is that IUC is a cost, and hence it should be cost-based. That’s the reason the regulator should be mindful of traffic symmetry so that the market does not get distorted.

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