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Mobile Subscribers Yearwise comparision

Point of Contention: Industry debates key interconnection issues

December 14, 2016

Over the past few months, interconnection-related issues have emerged as a new area of debate in the telecom industry. Recent entrant Reliance Jio Infocomm Limited has accused the incumbents of stifling competition by delaying the release of interconnection points. Meanwhile, the Telecom Regulatory Authority of India (TRAI) has proposed to do away with termination charges. While the regulator believes that such a move will encourage the proliferation of new technologies like voice over long term evolution (VoLTE), the incumbents are opposing the idea as they derive a significant amount of revenue from such arrangements. Industry experts share their views on the key issues and concerns related to interconnection, the existing interconnection usage charge (IUC) framework and the interconnection models prevalent globally...

What are the key issues regarding interconnection faced by the incumbents as well as new operators?

Inderpreet Kaur

The interconnection issues being faced by the industry stem from competition/regulatory and technical challenges. The regulator has taken a light-handed approach to tackling competition issues, while operators have been mandated to use reference interconnection offers (RIOs) as a standard tool for arriving at fair and reasonable interconnection agreements. The terms of interconnections are left open for the parties involved. The interconnection seeker can either accept the conditions in the RIO or negotiate more favourable terms. The regulator will only intervene in case of a complaint. Interconnection between service providers is also subject to the technical feasibility and integrity of the networks involved. For instance, inter-networking between circuit-switched and IP-based networks requires parties to install additional equipment.

Brijendra K. Syngal

Interconnection forms an integral part of a telecom licensee’s business and is at the heart of telecom services. It entails the linking of two or more networks for mutual exchange of traffic. The unified licence agreement mandates every licensee to grant interconnection, if and when any request is made by another service provider. As per the latest regulations governing interconnection, a termination charge of Re 0.14 per minute is levied on wireless to wireless calls based on the calling party pays (CPP) principle. On the other hand, no termination charges are levied on calls made from one landline to another, or from a mobile to a landline.

TRAI wants to abolish termination charges to encourage the deployment of newer technologies like VoLTE and internet telephony. Further, TRAI believes that termination charges work as a disincentive to the deployment of IP-based telecom networks by new operators as termination charges comprise a significant amount of revenue for incumbent operators.

In our view, it may be difficult to completely do away with termination fees. However, these could be reduced and brought in line with international standards.

Dr Mahesh Uppal

A consumer on a service provider’s network cannot connect with consumers on a different operator’s network if the two service providers do not interconnect their networks. The problem is even more severe for a new service provider. While it has a strong need to connect its network to that of the incumbents, the latter have little incentive to connect to a new network with few customers. Indeed, they typically resist competition by withholding interconnection or not providing sufficient capacity or charging too much to do so. So, the issues in interconnection are lack of transparency, fair access, time taken to provide the allocated capacity, the price charged and the location of the interconnection points.

How can TRAI ensure fair and speedy interconnection arrangements between service providers? What modifications should be made in the existing framework?

Inderpreet Kaur

TRAI has put in place quality of service (QoS) requirements for ensuring that customers do not face frequent call drops. In terms of ex-post requirements, TRAI can impose stiff penalties on operators failing to meet the QoS requirements. In case of interconnection disputes, wherein service disruptions directly impact consumers, regulators are expected to act in a timely manner and aid in identifying more efficient means of resolving disputes.

Brijendra K. Syngal

Cost-based termination charges should be adopted for domestic termination charges. One of the reasons for suggesting cost-based termination charges is to compensate operators, who have invested heavily in capital expenditure, to complete calls originating from smaller networks for maintaining a consistent quality standard.

Dr Mahesh Uppal

TRAI has already put in place an unambiguous pricing regime by fixing the IUC. It has also done well in creating a framework for all operators with significant market power to publicity display RIOs that lay down the technical and other terms for operators to interconnect with them. However, TRAI must do a better job at monitoring the other aspects, especially whether the incumbents are competing fairly and offering adequate capacity within a reasonable time frame.

What are your views on revising the IUC?

Brijendra K. Syngal

IUC is payable by one operator to another for using each other’s networks, especially for receiving calls terminating on their network. TRAI issued its first telecomm tariff order in 2003, spelling out the IUC. The IUC was first revised in 2004 when TRAI recommended flat charges of Re 0.30 per minute, irrespective of the distance. The rates were again revised in 2009, when they were pushed down further to Re 0.20 per minute. But this was challenged by some telecom players in the Supreme Court. The matter was subsequently settled and in 2015, the IUC was again revised to its current level of Re 0.14 per minute.

In our view, the entire IUC review exercise is superfluous and unnecessary since the existing charges were put into place on March 1, 2015 and the next review is scheduled for 2017. This exercise appears to have been done for the benefit of some new telecom players, ostensibly because of VoLTE/IP technology.

Dr Mahesh Uppal

IUCs need more careful consideration than they are receiving currently. While there may be a good case to ensure that interconnection is not delayed or provided in insufficient capacity, there is little evidence that IUCs in India are a barrier to competition. Lowering these charges will not necessarily increase consumer welfare. It may discourage expansion of networks in rural areas since that would reduce incentives for those investing there.

What are the international practices with regard to interconnection? What are the key learnings for India?

Brijendra K. Syngal

The US has adopted a bill-and-keep (BAK) framework for all telecom traffic exchanged with local exchange carriers as part of an effort to reduce arbitrage practices such as traffic pumping and phantom traffic, encourage the deployment of IP-based networks, and reduce artificial competitive distortions between wireline and wireless carriers. Under the BAK framework, also called the net payment zero framework, telecom service providers (call originators) do not have to pay any termination charges to the receiving interconnecting service provider. Hence, there is no share of revenue from the call originating company to the called destination company. The originator bills, keeps the entire money and shares nothing with other operators.

Meanwhile, in the European mobile telecommunications sector, the wholesale markets have traditionally applied the CPP principle, in which an originating network pays the terminating network a charge called the mobile termination rate (MTR) or fixed termination rate (FTR) for calls to the terminating network. The MTR paid under the CPP model, therefore, acts as a cost floor to retail pricing, preventing a lowering of prices. The CPP model leads to a high level of regulatory activity aimed at capping the MTR at a competitive level, which inevitably acts to reinforce the cost floor rather than being pro-competitive.

The present consultation paper floated by TRAI looks at the possibility of moving to the BAK regime. The paper argues that fixing termination charges in VoLTE/IP is complex and hence debatable. In addition, TRAI believes that termination charges work as a disincentive for telecom operators to deploy IP-based networks – which is the future of telecom. In our view, this understanding/belief of TRAI is a very superficial argument and does not hold much water.

Dr Mahesh Uppal

Regulators across the world recognise the importance of interconnection. There is a concern about high IUCs, a problem that India has handled rather well. Their focus is now on IP interconnection. Overall, there is a greater reliance on markets and on ensuring that players with market power do not abuse their position.

 
 

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