The Futile Fight Over TRAI's Decision To Slash Interconnection Usage Charges
Incumbent operators Airtel, Idea and Vodafone are opposing Trai’s decision to slash IUC which basically encourages the high-speed 4G network that is good for the country
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The new regulation to reduce interconnection usage charges (IUC) by 57 per cent will have far-reaching consequences on the telecom sector. It will help in bringing down tariffs and improving quality of services. It will basically force incumbent operators Airtel, Vodafone and Idea cellular to replace inefficient 2G networks with the latest 4G technology, which will allow the masses to enjoy the benefits of digital. High IUC disincentivises operators from investing in new technologies as they earn good revenue for just receiving calls on their depreciated 2G networks.
Telecom Regulatory Authority of India’s (Trai) decision has, however, taken the corporate war between Airtel, Idea, Vodafone and Reliance Jio to the next level. On 27 September, a week after the regulator announced that IUC will be slashed from 14 paise per minute to 6 paise, Airtel and Idea went to the Bombay High Court against the Trai regulation saying that it would have an adverse impact on their revenues.
Trai intends to further reduce IUC to zero paise by January 2020.
The IUC is a charge a telecom service operator, whose subscriber originates the call, pays to the operator in whose network the call terminates.
The Need For New IUC
Last year, when Reliance Jio unleashed the tsunami of 4G at low prices, it shook up the data-starved Indian market. The basic difference between 4G and 2G is that the former is based on Internet Protocol (IP), which blurs the difference between voice and data and increases efficiency of the network tremendously. This results in bringing down the price of carrying voice to less than one paise/ per minute and enables high data speed. This is what enables new operators to slash data prices by 98 per cent and make voice free.
In 2G, which is a circuit switched network, costs will always be high and the data speed low due to inherent inefficiencies; 3G is a hybrid of circuit switched and IP, and is again inefficient compared to 4G. The networks of incumbent operators Airtel, Idea and Vodafone are predominantly 2G.
So this is basically a tussle between old and new operators. Old operators want high IUC as that will help 2G players. And it is a universal phenomenon where incumbent players try to block the entry of new operators through regulatory means.
“Interconnection barriers have been a major tool in the armoury of incumbent operators in slowing down the launch of new entrants’ services,” says an International Telecommunication Union (ITU) report called ‘4th Generation Regulations: Driving Digital Communications ahead’.
The Logic Behind Lowering IUC
Now the question is, what has the ITU recommended on an important issue such as IUC for regulators. ITU report states that “where regulators are needed to mediate interconnection disputes, rates should be based on maximising economic welfare”.
In the Indian scenario, economic welfare of masses is maximised when the 4G networks are expanded so that the benefits of the digital economy reach everyone. The major bottlenecks for the Digital India programme are the lack of availability and the lack of access, as well as the high cost of broadband. The networks can’t even carry voice without a few call drops. In places where the Internet is available, the download speed is a big deterrent most of the time.
It is the responsibility of the regulator to ensure good quality services at affordable prices, which will be possible only when circuit switched networks are rapidly phased out and IP networks are expanded. Similarly, all the operators should be encouraged to penetrate the rural areas. And a deeper penetration will require a well thought out IUC regime.
By reducing IUC to 6 paise per minute, Trai is encouraging all telecom operators to migrate to IP. This will phase out 2G networks as the 2G players will not be able to compete with 4G operators.
Similarly, there will be no incentive for incumbent operators to continue with 2G. High termination charge encourages 2G as incumbent operators make money simply by receiving calls on their depreciated networks. It discourages them from migrating to IP networks.
The regulator has used pure long range incremental cost (LRIC) method to arrive at 6 paise per minute. This method was followed successfully in the European Union. In pure LRIC, only those costs are allowed that could hypothetically be avoided if the termination service were withdrawn. This excludes all fixed costs and common-cost mark-ups. It ensures that economies of scale are fully incorporated into termination rates.
With its latest move, the Trai is basically encouraging operators to turn the new disruption in telecom into an opportunity to meet the Digital India goals so the benefits of digital India reach everyone.
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