The Telecom Regulatory Authority of India (TRAI) has invited a review of the interconnect usage charges (IUC) which was last done in 2002-03. Although a reduction in these charges will lead to lower tariffs for consumers, the move will dent the profitability of the existing operators. New GSM players, however, stand to gain. We bring you the views of various mobile associations and analysts about the methodology for calculating mobile termination charges, the international scenario in terms of IUC, etc…
Should the mobile termination charges be reviewed? If so, what should be the new methodology for calculating these charges?
S.C. Khanna: The Interconnect Usage Charges (IUC) Regulation, which includes termination charges, transit charges and port charges, was framed in 2003. Subsequently, there have been some changes related primarily to carriage components. It has, however, been seen that dominant operators with large subscriber bases benefit from the regulation, whereas smaller and new/second network operators are in a disadvantageous position by paying heavy IUC. A review of the IUC by the Telecom Regulatory Authority of India (TRAI) will promote competition and consumer welfare, and will go a long way in fostering growth and affordability in the sector. In view of this, it is felt that the components of the IUC should be reviewed on a regular basis.
The calling party pays (CPP) regime creates unnecessary inefficiencies for measurement and settlement of interoperator compensations and gives rise to disputes. It also holds millions of rupees in inter-operator transactions for a very long time and unnecessarily inflates the number of off-net calls. In view of this, when the traffic is more or less balanced between operators, a viable alternative is the “bill and keep” regime. This provides a mechanism where a subscriber pays for the benefit of both making and receiving calls. It promotes economic efficiency by reducing service providers’ administration costs while maintaining a competitive scenario with more or less balanced traffic. “Bill and keep” is a superior methodology to CPP. This regime would eliminate the many calculations and maintenance of records that are now required. It would also eliminate arbitrage. In case the “bill and keep” system is not found satisfactory, termination charges should be reduced to a minimum, preferably to zero.
T.V. Ramachandran: The review of mobile termination and interconnect charges should be done based on international best practices and on hybrid forward-looking lyric costing (hybrid-FLRIC), which, according to experts, gives the lowest value. It is a cost calculation methodology that takes into consideration forward-looking costs, given that costs are coming down, volumes are going up and prices are falling. An aggressive method of calculating the service of termination, hybrid-FLRIC gives one of the lowest values compared to a fully allocated cost, and is used by many telecom regimes of the world. TRAI had also stated in 2003 that it is imperative that we move to hybrid-FLRIC. According to TRAI, this should be done over a period of time and not be an overnight change, as Bharat Sanchar Nigam Limited (BSNL) could not implement it at that time. The cost of termination was then fixed at Re 0.30. By sheer compulsive erosion in the value of money ?? that is, inflation ?? the Re 0.30 is probably worth Re 0.10-Re 0.15 now. We have shared our inputs on the best international practices with TRAI.
Namrta Sudan: Mobile termination charges in India are governed by the IUC Regulation, which was notified in 2003 when the Indian telecom sector was still at a relatively nascent stage. The sector has since evolved and witnessed significant changes such as a massive increase in the subscriber base, infrastructure sharing among operators, and new revenue generating products and services, which have greatly impacted the cost structure of the mobile sector.
Currently, a service provider on whose network the call originates pays termination charges to the service provider on whose network the call ends at the rate of 30 paise per minute for all types of calls ?? intercircle, intra-circle and international. The present IUC regime is more beneficial and advantageous to mobile operators that have large market shares in terms of subscriber base and networks as compared to small operators/new entrants, which have smaller subscriber bases. The disparity between operators vis-? -vis mobile termination charges tends to decelerate competition. It results in reduced margins for smaller operators, which, in turn, reduces their competitive abilities. Therefore, it is imperative that the components of the IUC regime should be reviewed for the benefit of consumers and to promote competition by adopting a fair methodology for calculating mobile termination charges.
The new methodology for calculating termination charges should be based on international best practices, while keeping in mind the current Indian telecom scenario and the objective of providing a level playing field.
A review of global best practices with respect to costing principles for the determination of mobile termination charges reveals that the hybrid-FLRIC model is based on costs and the future projections of costs. However, there are several contentious issues such as future projections for small operators/new entrants that need to be considered before implementing hybrid-FLRIC.
Mahesh Uppal: Mobile termination charges should be reviewed. These should reflect current costs and be based on international best practices. TRAI has released a consultation paper and asked for comments from major players on the same, which is a move in the right direction. We must have termination rates that sustain the current level of competition.
How would new services like 3G and Wi-Max affect the current IUC regime?
S.C. Khanna: The Indian telecom scenario will become more complex within a year when various technologies like Wi-Max, HSPA, fixed mobile convergence and next-generation networks are available. Each network will have its own costs in addition to related government levies like spectrum fee. Inter-operator settlements would also become very difficult. In this scenario, it is impossible to find termination charges purely based on costs.
The “bill and keep” regime appears competitive and technologically neutral, and will allow uniform compensation with all kinds of networks. The regime will promote a competitive environment, and new technologies like 3G and WiMax will have a level playing field with the existing technologies.
T.V. Ramachandran: This is a hypothetical question. We do not know when the auctions and the network rollouts are going to happen and when we will have data to assess the costs. 3G may raise mobile termination charges. However, I do not advocate this. It is not in the best interest of consumers to increase costs based only on speculation that 3G might increase the cost of termination. We should wait until the service is launched, get data and then appropriately address it.
Namrta Sudan: It is still premature to ascertain the impact of new services like 3G and Wi-Max on the current IUC regime. In the present multi-operator environment, introducing new services may give rise to interconnection issues such as quality of service, content and carrying content of networks, amongst the various operators.
Mahesh Uppal: 3G and Wi-Max services should be left out of the current IUC regime. IUC should be for basic public switched telephone network (PSTN) connectivity only. The current method should be retained or upgraded to international best practices and the charges must continue to be on the basis of prevailing costs. The basic interconnect and termination charges should not be impacted by 3G and Wi-Max.
Should Indian operators be allowed to charge a higher amount from foreign operators for terminating incoming international calls? Is there a more viable alternative?
S.C. Khanna: The Association of Unified Telecom Service Providers of India (AUSPI) is of the opinion that asymmetric domestic and international termination charges are not justified. In view of this, all termination should be on a cost basis and not on a reciprocal basis. If Indian operators are allowed to charge higher amounts from foreign operators, a grey market will emerge which is not desirable in the interest of national security. It also results in loss of revenue to the government. There would moreover be arbitrage if international termination charges are higher than domestic charges.
T.V. Ramachandran: I do not want the Indian consumer to be “If Indian operators are allowed to charge higher amounts from foreign operators, a grey market will emerge which is not desirable in the interest of national security impacted. We already offer the lowest tariffs and costs compared to international operators, and international operators are benefiting from that. So, if termination costs go up, it is good for termination revenues and could be allowed. As long as the Indian consumer is not impacted it is okay. We should leave this to negotiations among operators and forbearance. The regulator should not intervene.
Namrta Sudan: On an average, foreign operators charge Indian operators Rs 3 per minute to terminate outgoing international calls in their respective countries, whereas as per the existing IUC regime, Indian operators are not allowed to charge more than 30 paise per minute. It has been argued that the number of international calls originating from India is substantially higher than the number of international calls terminating in India. Accordingly, the substantial higher termination charges charged by foreign operators are set off by the substantially higher number of calls originating from India.
In this regard, it may be pertinent to mention that the aforesaid difference in termination charges is not for commercial reasons but is on account of restrictions imposed by the regulators in India. The practice is not only detrimental to the interest of Indian operators, but the country also loses on substantial foreign exchange.
We are of the opinion that the regulations regarding termination charges levied on foreign operators should be revised to permit Indian operators to negotiate the charges on a commercial basis.
Mahesh Uppal: The most important thing is that termination charges must reflect the underlying costs to the incumbent operator because the rest of the costs are immaterial. What we need to be actually concerned about is where the majority of the traffic really terminates. The rest of the routes can be left to operators to decide on. In fact, Indian operators pay less to terminate calls in the US and the UK. You may well be paying more to terminate a call in Belgium, but you don’t pay more for those places where the majority of traffic terminates.
What is the current IUC scenario globally vis-a-vis India?
S.C. Khanna: The IUC scenario, whether international or domestic, should have interconnection terms, including cost orientation rates, etc. Interconnection should be such that the cost effect of the incumbent operators is not passed on through termination charges to connecting operators. These are some of the issues relating to IUC prevalent everywhere.
T.V. Ramachandran: Mobile termination charges are far higher internationally than in India. But then, overall, India is very different from the international arena.
Namrta Sudan: The liberalised and developed international telecom markets have the following key trends with respect to interconnect usage charges:
The above key models are framed based on the needs of each country. The latter, in turn, depends upon the number of consumers, traffic, the products and services offered, the extent of network sharing, etc. Countries like Austria, Malaysia, Pakistan, Brazil and Taiwan are adopting the fully allocated cost model, or the long-run incremental cost model, or a combination of both.
Mahesh Uppal: India’s termination rates are among the lowest in the world. This has significantly helped to bring down charges to the end-users but we should not go about lowering them any further in the name of competition. The Indian market is already very competitive with the presence of more players than in most international markets; so now, the focus should be on sustaining competition and not increasing it. It is important to ensure that operator surpluses are not reduced to such an extent that investments in less profitable regions, such as rural regions, are hampered.
