Bharti Airtel dismayed, Vodafone disappointed by TRAI IUC cut

As expected, incumbent telecom operators have expressed their disappointment with the regulator going ahead with cutting the interconnect charges paid by one operator to another at the time of handing off internetwork calls.

The operators are likely to approach the government and the court against the move to reduce interconnect charges to 6 paise per minute from 14 paise.

“We are extremely disappointed with the latest regulation on the IUC, especially at a time when the industry is facing severe financial stress,” said Bharti Airtel.

“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 added.

“The sharp drop in the IUC rate will only help transfer part of its cost to other operators, thereby further worsening the financial health of the industry. As part of an industry, which continues to be a critical driving force behind the economic growth in the country, we are genuinely dismayed by this decision,” it said.

Vodafone too said it was disappointed.

“We are disappointed with this decision and are now considering our options in response to it,” it said.

“The Indian telecoms industry is already experiencing the greatest period of financial stress in in its history,” it said, referring to the entry of a new operator Reliance Jio into the business.

Jio has used new technology to keep its costs high and lower prices in the market, which has hit legacy operators hard.

“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.”

TRAI calculated its interconnect charge on the basis of Long Run Incremental Cost (LRIC) method instead of the Fully Allocated Cost (FAC) method, which players like Bharti Airtel wanted. The FAC method takes into account a larger segment of costs, while the marginal cost method takes into account only the incremental cost of termination services.

“The supporters of the FAC method opined that this method assures the recovery of the entire cost, including historical costs, and is a more credible method because it relies on the actual data furnished by the TSPs.

‘They have contended that most variants of the LRIC method consider only incremental cost and, therefore, do not entirely (or, adequately) compensate the full cost; besides, the LRIC method is based on a large set of assumptions on network parameters and, therefore, lacks robustness and is not as sturdy as the FAC method. This method has been long discarded in India as well as internationally and merits no consideration,” the TRAI said.

It noted that newer operators favored the incremental cost method.

“Many stakeholders have favored the Pure LRIC method stating that this method would yield the most appropriate cost of terminating voice call which would, in turn, help the service providers to provide competitive tariffs in the market,” it said.

It also noted that many incumbents who are now calling for the full cost method were in favor of the incremental method in the pre-Jio era.

“It is worth mentioning that many service providers and the Cellular Operators Association of India (COAI), who have supported the FAC method in the present consultation process, had favoured the use of LRIC method in TRAI’s consultation process of 2008-09,” TRAI said in its note on the IUC change.