Incumbents' loss is Jio's gain

TRAI rules that Bill and Keep model, demanded by Reliance Jio, is subscriber friendly; will lower tariffs, promote competition and incentivise modernisation of infrastructure

pratap

Pratap Vikram Singh | September 20, 2017 | New Delhi


#Telecom Regulatory Authority of India   #Digital India   #Termination Charges   #Incumbent Loss   #Vodafone   #IUC   #Telecom   #Reliance Jio   #TRAI  
Representational image (GN)
Representational image (GN)

The telecom regulator has opted for the Bill and Keep (BAK) model for interconnection usage charges, that one operator pays to the other for call termination. At one stroke, the telecom regulatory authority of India (TRAI) regulation on interconnection has facilitated savings of Rs 5,000 crore to Reliance Jio and loss of revenue for the incumbents of approximately Rs 3,500 crore.

The move, say telecom experts, would further lower incumbents capacity to invest in the network. The incumbents including Airtel and Vodafone-Idea are already bleeding with the aggressive offerings by Jio.

By 2020, the TRAI will phase out domestic call termination charges on mobile to mobile calls. It has brought down the IUC to six paise from 14 paise per minute, from October 1.

"For other types of calls (such as wire-line to mobile, wire-line to wire-line and wire-line to mobile) the termination charge would continue to remain zero," the TRAI said in its regulation on domestic termination charges.

The Cellular Operators Association of India (COAI) has called the interconnect regulation disastrous and has decided to go to the court. In a strongly worded reaction, Vodafone said, "This is yet another retrograde regulatory measure that will significantly benefit the new entrant alone while adversely affecting the rest of the industry as a whole. Unless mitigated, this decision will have serious consequences for investment in rural coverage, undermining the government's vision of Digital India."

The industry was divided on the IUC, although a majority of experts who offer professional advisory services to the telcos were clearly against phasing out of IUC and adoption of BAK model. Both sides — one in favour of phasing out IUC and the other in favour of increasing it or keeping it unchanged — had reasons, facts and figures and methodology to corroborate their stand.

Here are the main issues and the justifications given by the TRAI in its choice for BAK in the coming two and half years. These are the excerpts drawn directly from the TRAI (Thirteenth Amendment) Regulations, 2017.

Technology evolution
It is essential for the Authority to promote technologies with lesser costs so that consumers can benefit from lower tariffs. With a view to promote new and more efficient technologies, the Authority is expected to be forward looking and base its regulations on the most efficient technology.

Incentive for technology upgrade
With the evolution of technology and convergence, more and more networks are migrating towards IP network worldwide. Regulators across the world are working towards facilitating migration towards Next Generation Networks (NGN) which will be IP based networks so that innovative services could be provided to the customers.

The Authority is of the view that termination charges work as disincentive to deployment of new technologies such as VoLTE and migration to IP networks by operators. Moving towards BAK will encourage adoption of latest technologies and the deployment of IP-based telecom networks. Since IP based networks are poised to be the networks of the future for providing telecom services, a BAK regime should be seen as a natural facilitator for the development of technology.

Consumer tariffs
It has been observed that reducing termination rates has benefitted consumers and enhanced competition. Going the full distance i.e. reducing terminating rates to zero by introduction of the BAK regime would help in immediately realising these benefits. The Bill and Keep regime will encourage flat rate billing and time differentiated charges, both of which will improve capacity utilisation and will be in the interest of consumers. It will also reduce the inter-operator off-net traffic imbalance, and thus could help in convergence to an equilibrium situation.

The Authority observed that when a TSP establishes a network, it is not only for sending but also for receiving calls. The operator, therefore, does not do anything special or extra to provide for receiving another service provider’s calls.

Measuring costs caused by another service provider’s incoming calls is more challenging and there is no general agreement across regulators as to any single methodology that can be adopted to arrive at the termination price. Depending on the methodology used, the result is different. There is, therefore, a case for introduction of a Bill and Keep regime.

Pro-competition
When a call is placed to a particular consumer of the terminating network, the originating network typically has no choice but to purchase the termination service of the terminating operator to which the called party belongs. Thus networks that terminate calls to their subscribers have market power in respect of the terminating call.

BAK represents an approach to interconnection charging in which the networks recover their costs only from their own consumers rather than from their interconnecting operators.

The Authority has observed a clear trend in the market of very low tariffs for on-net calls and higher tariffs for off-net calls, especially from the incumbent operators. The justification offered by these operators is that they incur cost of IUC for off-net calls. It is intriguing because there should also be a cost for on-net calls as work done for terminating call is the same. This price differential, which is higher than the IUC rate, is clearly a way for incumbent operators to subsidise on-net calls, and is anti-competitive. Moving to BAK method will result in elimination of price differential between on-net and off-net calls and will reduce overall tariffs for customers. The elimination of IUC will result in direct benefit to customers through lower tariffs.

Traffic Asymmetry
One argument is BAK does not lead to optimal outcomes where traffic flows between operators is asymmetric. Traffic balance can be expected if termination rates and retail prices, notably the relative on-net and off-net prices, are approximately set to theoretically optimal levels. This is because individuals’ propensity to call each other, if undistorted by artificial price differentials, would be unlikely to vary between networks in a way that would lead to traffic imbalance. In fact, the pricing method itself can influence whether or not traffic is in balance. The asymmetry in traffic in a healthy competitive environment will always exist to some extent.
 

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