TRAI's Decision Disappoint Airtel, Vodafone

TRAI revises IUC (Interconnect charges) to 6 paise/minute, effective Oct 1

The Telecom Regulatory Authority of India (TRAI) has slashed the interconnection usage charges (IUC) to 6 paise.

Industry analysts said the Trai move was negative for BhartiAirtel, Vodafone India and Idea Cellular, modestly positive for Anil Ambani-owned Reliance Communications and Aircel and beneficial for Reliance Jio.

It has been observed that reducing termination rates has benefitted consumers and enhanced competition. Trai has also announced that it is planning to abolish the IUC charges on all local calls from January 1, 2020.

Bharti Airtel claimed that 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". Since this time the quantum of reduction as well as the proportion of incoming calls is higher, the impact on revenues of the larger incumbents is also expected to be higher.

Kotak Institutional Equities, the institutional India brokerage, predicted that Jio, which now pays close to $1 billion in interconnection fees, will save $550-$600 million (30-33 rupees per user) annually as result to the new charges.

Jio, which began charging for data April 1, took another swing at rivals earlier this year by offering a US$23 4G-enabled feature phone with tariff plans as low as 23 rupees for two days or 153 rupees monthly.

Vodafone India Ltd, India's second largest carrier, said it would weigh its options in response to the change.

The government introduced IUC charges in 2003 on goal to ensure continuous investments from telecom operators in network expansion and upgradation. The Indian telecoms industry is already experiencing the greatest period of financial stress in in its history.

The established operators such as Bharti Airtel and Vodafone have contended that telecom infrastructure in rural areas largely depends on revenue from incoming calls, and lowering or removal of such charge will hamper services.

Jio said it was "appalling that the incumbent operators", made allegations that the new rates were not transparent and baseless.

The biggest benefactor of this decision will be Reliance Jio as the operator has more originating calls as the compared to the ones that are terminated to its network. "It will encourage new players to be more competitive as they will be liable to pay less in interconnect as their subscriber base grows".

So why did TRAI reduce the IUC charges? "It should have been implemented in 2014 as envisaged in the 2011 Report submitted by TRAI to the Supreme Court and will be six years too late", said Reliance Jio in a statement.

The IUC charges for other types of call such as wire-line to mobile, wire-line to wireline and wire-line to mobile will remain zero.

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