Trai's plan to extend IUC regime will disincentivise 4G upgrade, says Jio

Telco also contests incumbents' claim that move will help them financially

The Telecom Regulatory Authority of India’s (Trai’s) plan to extend the interconnect user charge (IUC) regime beyond December will disincentivise the use of 4G technology and keep voice tariffs for over 73 per cent of the incumbent operators’ customer base high, depriving them of the benefit of free calls. It will also earn incumbents lower revenues from Reliance Jio for terminating their calls and, hence, not help them financially, contrary to what they argued. 

According to sources close to Jio, the company is expected to elaborate these points as part of its response to the telecom regulator’s discussion paper on deferring its earlier decision of introducing zero IUC from January.

Challenging the claim of incumbent operators that an extension is required because of the financial problems of the industry, the sources said their woes were self-inflicted. 

Incumbent telcos fiercely competed for spectrum before the merger of Vodafone and Idea, which led to the prices of airwaves hitting the roof, and overinvestment -- most of it was financed by debt rather than equity. This, they said, was reflected in the fact that while the annual deferred liability payment for spectrum in the case of Voda Idea was Rs 12,287 crore and Airtel Rs 5,751 crore, Jio’s was far lower at Rs 3,388 crore. The burden of spectrum payouts has forced Ebitda (earnings before interest, tax, depreciation and amortisation) margins of Voda Idea, for instance, to fall to 11 per cent in the last reporting quarter. 

Voda Idea has 1.48 times more spectrum than Jio, but the former’s coverage of 4G (population coverage of 69 per cent) has been slow. 

Hence, about 73 per cent of the customers of incumbent telcos are still on 2G/3G, creating an asymmetry between the incoming and outgoing calls between Jio and the competing networks, according to the sources. 

The incumbents’ complaint that the ecosystem for 4G voice over LTE phones (which reduce the cost of voice dramatically) is very limited has been questioned by Jio. The Mukesh Ambani-owned firm has sold over 100 million Jio feature phones, which are VOLTE-enabled. There was no reason, the sources said, why others could not invest in the same to build the market. 

Under the IUC regime, a customer from Jio making a call to a competing network has to pay 6 paise a call. The allegation by Jio is that incumbent operators charge a steep rate for voice calls from their 2G customers (as high as Rs 1.60 a minute), forcing them to make missed calls on their networks, leading to an increase in return calls for which it has to pay IUC. Incumbent operators, on the other hand, blame Jio for reducing the ring time on their outgoing calls from 45 seconds to 20 seconds, and inducing more missed calls on their networks. 

The sources said Jio had forked out over Rs 13,500 crore as IUC to incumbent operators since its launch in September 2016. However, with 8-9 million new customers being added every month at the expense of Airtel and Voda Idea, the incoming calls to its network from competing players are heading towards the 50 per cent-mark (39 per cent currently) of the total calls, after which it will not have to pay any IUC.