India Takes Major Step to Lower Voice Calls Tariffs Across All Networks

 
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India Takes Major Step to Lower Voice Calls Tariffs Across All Networks

Highlights

  • TRAI has slashed interconnect usage charges
  • The move could make a dent in the profits of Airtel and Vodafone
  • Reliance Jio will benefit the most from the direction, analysts said

In a major blow to several top telecom operators in India, the country's telecommunications regulator TRAI has ordered the interconnect usage charges that the telcos impose on each other for handling calls to be slashed effective October 1. The move, analysts said, could set wheels in motion that will lower the voice calls tariffs across all mobile networks in the near future. Vodafone and Airtel have fiercely opposed the direction.

TRAI said late Tuesday that starting October 1, the interconnect usage charges will be dropped from 14 paise every minute to 6 paise every minute starting next month. The regulator further added that interconnect usage charges will be completely scrapped starting January 1, 2020.

When a user on one telecom network makes a phone call to a user on another telecom operator's network, the caller's network provider makes a payment - "interconnection usage charge" - to the operator that receives each calls. Other types of calls such as those made from landline telephones (wired connections) have long been not subjected to any interconnection charges.

Airtel and Vodafone, two of largest telecom operators in the country with mammoth infrastructure, have strongly opposed TRAI's notice. In a statement, Airtel said it was "genuinely dismayed" by the decision. "The suggested IUC rate, which has been arrived at in a completely non-transparent fashion, benefits only one operator which enjoys a huge traffic asymmetry in its favour," it said. Vodafone found the decision yet "another retrograde regulatory measure that will significantly benefit the new entrant alone while adversely affecting the rest of the industry as a whole."

One telecom operator which hasn't opposed the move is Reliance Jio. And there's a good reason why. TRAI's direction will help Reliance Jio substantially lower its operating cost, analysts said. Reliance Jio, which started its commercial operation last year, has been offering customers voice calls at no charge from day one.

The operator has long argued that existing interconnect charges were not fit to companies like itself that use state of the art technology to process voice calls at negligible cost. Reliance Jio uses Voice-Over-LTE technology to make phone calls. In contrast, in 2012, Airtel had urged the regulators to allow interconnection usage charges on internet companies.

So far Reliance Jio, part of India's largest industrial house, has been paying Airtel, Vodafone, Idea, and other telecom operators interconnect charges. In fact, for the first few months, Reliance Jio kept complaining that incumbent players were never providing it with enough interconnects, something that resulted in a huge voice call drops on its network, it said. Since then, the company has significantly lower voice call drops issues on its network.

According to estimates from several analysts, Airtel, Vodafone, and Idea will lose between 8 to 15 percent of their operating profits when the revised interconnect usage charges come into effect. Telecom operators in India don't disclose exact revenue they make from interconnect charges.

"If there is one telecom operator which would be benefited from the move, it's Reliance Jio," Jayanth Kolla, founder and partner at Convergence Catalyst told Gadgets 360. At the same time, Vodafone and Idea and other telecom operators will find themselves stuck between a rock and a very hard place.

As one of their revenue sources takes a hit, Vodafone and Airtel will aggressively look for other ways to recoup that money, Kolla explained. A few years ago, they would have bumped voice and data tariffs. But now they can't because they are worried their customers will move to Reliance Jio, he added.

When Reliance Jio is required to pay a lower sum to incompetent players, it might consider further lowering its base plan of Rs. 153, through which it offers customers free voice calls and some free data and access to a plethora of content catalogue, Kolla said.

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"It's likely that this bonanza could help Jio further reduce its tariffs or increase the offerings at the same cost -- stepping up competitive pressure on the incumbents reeling from the IUC revenue loss. If so, the incumbents may be forced to match the offerings," Prasanto Roy, a technology analyst said.

Some other ways Reliance Jio's rivals could bring in additional revenue is by broadening their services portfolio. Earlier this month, Airtel introduced VoLTE calls on its network for customers in Mumbai. Reliance Jio has offered VoLTE voice calls from day one, and it has shown that this model itself drives data usage, Kolla said.

Another thing that this move could do is push all telecom operators towards IP based services. "This will encourage telcos to adopt all IP networks even for traditional calls as is the case of Jio," since the days of making money from interconnect charges are now numbered, Neha Dharia, senior analyst at marketing research firm Ovum told Gadgets 360.

TRAI's announcement could also make it easier for future companies to compete in the telecom sector, analysts said. "It will encourage new players to be more competitive as they will be liable to pay less in interconnect as their subscriber base grows. This rule will adversely impact incumbents that still rely on traditional network calls," Dharia added.

"Reduced IUC is good for smaller or newer telcos, as most of their subscriber base will call 'outward' into other (incumbent) telcos, hence they pay a lot more IUC per user than incumbents," analyst Roy echoed the sentiment, however adding, that "this is theory: in practice the telecom industry is not going to support many small and new players unless they are backed with enormous cash, as Jio is."

TRAI's move itself has surprised many. Last month, Vodafone chief executive Vittorio Colao urged the regulators to not fulfil all of Reliance Jio's demands. "Reducing IUC charges is not unexpected as the telecom industry matures and technology progresses and drives costs down. However, to do this at this point, and so abruptly, where there's a major asymmetry with one major player gaining at the cost of incumbents, will bring up questions again about TRAI favouring Reliance Jio," analyst Roy added.

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