Trai hurting us to benefit one new telecom operator, say existing telcos

Telcos plan to move court on interconnect charge review

Incumbent telecom operators are planning to take the sector regulator to court for coming out with regulations that they said were biased and were designed to benefit a new entrant. Highly placed sources in the industry said the Telecom Regulatory Authority of India (Trai) was  repeatedly coming out with consultation papers and regulations, which were aimed at favouring just one new player.

Incumbent operators said some of Trai’s recent moves — be it the call drop regulation, change in block sizes of 2,300 Mhz spectrum (lowered from 20 Mhz to 10 Mhz) for the upcoming auctions or the latest consultation paper seeking to review the interconnect charge regime — were hurting them.

A senior executive of a telecom company said the call drop regulation, which sought to levy penalty for incomplete calls, was only for operators that offer voice through the circuit switched fallback route (2G and 3G operators). The regulation had no mention of penalising operators offering voice on LTE (VoLTE). Currently, no operator in India offers VoLTE, but Reliance Jio is slated to launch voice on LTE later this year.

Incumbent telecom operators cite other instances, too. For example, they said the regulator’s consultation paper to review inter-connect charges came barely 17 months after it lowered interconnect charges from 20 paise to 14 paise in March 2015 when Rahul Khullar was the Trai chairman.     

Telecom operators have contested this in court and are, therefore, surprised that the current chairman, R S Sharma has sought to review the charges in such a short span of time.The new consultation paper, incumbents said, would wipe out Rs 15,000 crore of the industry’s revenues. Bharti Airtel will be the worst hit as it is the largest operator.     

Even as the Trai has cited the changing dynamics of the telecom business as a reason to review these charges, globally mobile termination charges are paid to operators in 100 countries for calls terminating on their networks, despite the proliferation of data and Internet telephony. In other countries, where termination charges are not paid to operators, consumers have to pay for incoming calls.

Currently, telecom companies get 14 paise for calls terminating on their network. If a Vodafone customer is calling an Idea or an Airtel subscriber, the latter gets 14 paise per minute for calls terminating on their networks.  The interconnect charges have been levied after the calling party pays (CPP) regime came into effect in 2003. Mobile subscribers had to pay for incoming calls too before that.

Incumbents allege that there is a cost associated with completing calls that come to their network, which is calculated on a model known as the Long-run Incremental Cost (LRIC). This model factors in incremental cost a service provider incurs to complete calls that come on its network. Every network has a capacity of voice minutes it can handle and this capacity comes at a cost. However, in this model capital expenditure and depreciation are not included nor is the new spectrum cost factored in. Operators said the current interconnect charges did not cover their costs, which is why they have gone to court to contest the Trai’s decision to lower the same to 14 paise from 20 paise.     

In the event a new operator launches its service and does not have to pay any interconnect charges to incumbents, its cost of calls would be significantly lower and the incumbents would see their networks receiving a barrage of calls thanks to their base. Due to competitive intensity, cost of voice minutes is among the lowest in India already. Operators claimed they would bleed, if voice realisations went down further from the unsustainable levels.

The industry’s relationship with the regulator has steadily been deteriorating in recent times.

After losing the call drop battle in Supreme Court, the regulator banned differential data pricing by telcos. But the rules contained a loophole called the closed electronic communication networks (CECN) where telcos could offer differential pricing for content. Despite repeated clarifications, the regulator has not yet stated why the CECN window was opened.

Interestingly, the industry’s relationship with the government and the Department of Telecommunications appears to be strong, as there is no build-up of stress on that front.

REGULATIONS UNDER CLOUD

REVIEW OF INTERCONNECT CHARGES

Trai’s consultation paper on Friday seeks to review interconnect charges that telcos get for calls terminating on their network. Trai had lowered it by 30% in March 2015

What incumbents say:

Doing away with interconnect charges will dent revenues by Rs 15,000 crore. The current charge of 14 paise does not compensate costs. A new entrant will not pay any charge on calls terminating on incumbents’ networks

CALL DROP REGULATIONS

Trai’s October 2015 regulation mandated telcos to compensate subscribers Rs 1 per call for call drops

What incumbents say:

Incumbents now allege that the move appears to discredit existing players

CHANGE IN BLOCK SIZES FOR SPECTRUM IN 2,300-MHZ BAND

In 2010 the minimum block size for 2,300-Mhz auction that an operator could bid for was 20 Mhz. In 2016, Trai has cut it to 10 Mhz

What incumbents say:

Changing block size unprecedented. In previous auctions, one operator had bought 20-Mhz spectrum across India in this band. By halving the block size, this operator can acquire more spectrum in this band and other incumbents will not be able to bid for 20 Mhz