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Reliance Jio vs Airtel: Airtel Says It Is Bleeding Rs. 550 Crore per Quarter Thanks to Jio

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Reliance Jio vs Airtel: Airtel Says It Is Bleeding Rs. 550 Crore per Quarter Thanks to Jio
Highlights
  • Reliance Jio says that telcos should do away with interconnect charges
  • Airtel believes this will lead to a monopoly situation for Jio
  • Airtel says it lost Rs. 550 crore per quarter due to calls from Jio

Ahead of Reliance Industries AGM on Friday, a war of words has heated up between Reliance Jio and Airtel, with the latter stating that Jio's network is "getting a free ride", and continuing with "a strategy of predatory pricing," in the words of Ravi Gandhi, Chief Regulatory Officer, Airtel. Reliance Jio dismissed this as a myth, and claimed that the incumbent operators have made "excess recovery" to the tune of nearly Rs. 1.2 lakh crore. Airtel responded to this with a statement where it wrote: "The allegations made by Reliance Jio regarding Airtel earning excess revenue from MTC (Mobile Termination Charge) are not only false but laughable."

It added that the TRAI mandated MTC of 14 paisa is well below the cost of producing a minute, which Airtel says is currently at 35 paisa. In fact, with the tsunami of calls originating from Reliance Jio’s network, Airtel loses 21 paisa for every minute that is carried on its network, the company says. Airtel adds that it has resulted in a loss of Rs. 550 crore per quarter.

In India, typically only outgoing calls are charged, and incoming calls are free. When a call ends outside the home network, your network has to pay the network that was called. This is a fee called the Mobile Termination Charge, or MTC, and it is part of the overall Interconnect Usage Charge (IUC). That's how many operators were able to offer free calls within their own network, but typically charge for calls to other networks, to offset the cost of paying the MTC.

Reliance Jio of course changed that by offering free voice calls to all networks within India. As long as MTCs are in place, Jio effectively is losing money every time its customer makes a call to another network. That explains why the newest telco is keen to get rid of MTC altogether.

Right now, the telcos are meeting with the Telecom Regulatory Authority of India (TRAI) to discuss a consultation paper on interconnect charges, and Reliance Jio wants the IUC scrapped. Airtel on the other hand, opposes this, so that the "tsunami" of calls its network receives from Jio users can generate revenue.

Established operators say that infrastructure in rural areas depends on the revenue from incoming calls, but Jio claims it will provide 99 percent coverage even if mobile interconnection charges are dropped.

At the TRAI discussion, a Jio representative said that people in rural areas are "subsidising the inefficient network of telecom operators," and added that it is much cheaper to make calls on 4G networks, but the existing telcos are "making people in rural areas use 2G network."

Of course, any move that encourages a shift to 4G could be beneficial to Jio - it would mean that more entry-level phones start supporting the technology, which would open up the number of people who can adopt Jio's 4G-only network.

Airtel says that doing away with MTC, as Jio proposes, would transfer the cost of Jio's "free" calls to the incumbents, to the tune of Rs 15,000 – 20,000 crores per year for the industry. Such cost transfer, it added, would allow Reliance Jio to create a monopoly. Jio has not responded to Airtel's latest statement as yet.

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