Reduction in Interconnection Usage Charge (IUC)
The telecom sector in India is in doldrums in recent times. A new issue recently emerged when the telecom regulator TRAI revised the Interconnection Usage Charge (IUC) and brought them down from 14 paise per minute to 6 paise per minute from October 1, 2017.
Understanding IUC
Interconnection means the arrangement whereby the telecom players are able to connect their equipment, networks and services with other telecom players to provide services to end users. IUC is defined by TRAI under a specific formula. The charge is paid by the service provider whose subscriber originates the call to the service provider in whose network the call is made. Thus, if I am an airtel subscriber and call Ramesh, a Jio subscriber; then I will pay to airtel and airtel will need to pay the IUC to Jio. The objective of this calling-party pays regime (CPP) is to allow operators cover network usage costs. Since it needs infrastructure investment, the IUC ensures that operators make enough operations to keep their business viable.
We note here that till 2003, the subscribers had to pay for both incoming and outgoing calls. That year paved the way for a calling party pays (CPP) regime and subscribers no longer needed to pay for incoming calls. This made mobile phone highly affordable to the low usage customers who mainly used it for incoming calls. But still, the outgoing calls are charged under this regime. The IUC makes it possible to allow seamless connections and is one of the major revenues of the telecom operators. There are several components of IUC such as termination charge, transit charges, international settlement rates, carriage charges, origination charges. The current issues only about the termination charge component. At present, only wireless to wireless attract IUC.
Stance of Companies
The stance of the companies depends on which kind of their infrastructure is. The existing players such as Bharti Airtel, Idea, Vodaphone etc. have most of their network on 2G. The costs on 2G are higher so they wanted to hike or at least a status quo in IUC. However, Jio supported either reducing or even ending the IUC. The reason is two-fold. First, most of network of Jio is on 4G which costs less. Second, since Jio has offered free calls, most of calls made on its network are originating instead of terminating, thus, its IUC bill is substantially low. Prior to recent move, TRAI had reduced IUC from 30 paise per minute to 14 paise in 2014.
Implications and Criticism
As IUC directly impacts the call tariff reduction in IUC is likely to yield consumer benefits through low call charges. Reduction in IUC helps to deploy new technologies like VoLTE (Voice over Long Term Evolution), migration to Internet Protocol networks by operators, wherein there are no interconnection charges. It will help for the growth of new operators as new operators have fewer subscribers than their incumbent competitors.
However, the move has been criticized because of its wrong timing. Reduction in interconnection charges would lead to large scale shut down of unprofitable networks in India. This may cause large scale termination of networks in rural areas due to little call origination revenue in rural areas, which may act as barrier for government programs like Digital India etc. At present situation reduction in IUC may lead to monopoly / oligopoly in telecom market which will reduce competition. Without reduction in Spectrum charges which is highest in the world, it is not possible to give full benefits that arise with the reduction of IUC, to the consumers. This move is beneficial to only Jio / few telecom operators because, currently 95% of voice traffic is through Networks using 2G, 3G, 4G and only 5% of voice traffic is through the newer VoLTE-based 4G network.
Global context
International Telecommunication Union recommends that the regulators should follow a ‘bill and keep’ regime. If immediate implementation of bill and keep is not possible, then it should move towards a zero termination charge regime as fast as possible.
