Scrapping IUC would incentivise technological evolution, preserve competition and ultimately benefit consumers.
Reliance Jio’s decision to pass on interconnection usage charges (IUC) for outgoing calls on to customers has again brought to the fore what should have been a done-and-dusted issue.
IUC is the charge the operator of a network on which a call originates pays to the network where the call terminates. For example, when a Jio subscriber makes a call (originator) to an Airtel subscriber (receiver) Jio will have to pay IUC charges to Airtel for hosting the call.
In 2017, the Telecom Regulatory Authority of India (TRAI) had notified that IUC would go by January 2020 only to retract on its stand earlier last month by issuing a fresh consultation paper on the issue throwing the telecom sector into a turmoil. It is puzzling that TRAI wants to revisit IUC when its 2017 explanatory memorandum so clearly enunciated why this anti-consumer charge should go.
Four reasons spring up when one reads the explanatory memorandum which can be accessed here
One, it is outdated: IUC is associated with old telecom technology. It has been outpaced by rapid modernisation and technology evolution in the sector.
As the TRAI paper says, by 2017, all major service providers in India had either committed to internet protocol (IP)-based LTE (4G) networks or had declared plans of doing so in the future. Thus, voice calls provided using IP-based technology would be the most efficient mode of delivery by any available parameter - be it cost, quality or efficiency of delivery.
Since IP based networks are poised to be the networks of the future for providing telecom services, a Bill and Keep method (BAK) regime should be seen as a natural facilitator for the development of technology.
Accordingly, TRAI said that if IUC system continues for long it would delay the deployment of more efficient technologies; and more innovative and customer friendly tariff offerings. That, in turn, will hurt the growth of the telecommunication services sector, the explanatory memorandum indicated.
Two, a zero IUC regime works as an incentive for Technology Upgrades. TRAI’s paper clearly said that termination charges work as a disincentive to the deployment of new technologies such as VoLTE and migration to IP networks by operators. Moving towards BAK will encourage adoption of the latest technologies and the deployment of IP-based telecom networks.
“In case, a TSP continues to get a cost-oriented termination charge estimated on the basis of yester-years’ network technology (such as 2G or 3G), where is the incentive for him to migrate towards a more efficient network technology (such as 4G) requiring capital investments in short-run,” said the paper. Note that even in 2017, 80 percent of the spectrum held by various service providers was capable of hosting any technology (2G/3G/4G).
Three, scrapping IUC would help preserve competitiveness in the telecom sector. As the TRAI paper pointed out, in a market with asymmetric traffic flows, termination charges set at higher levels than cost become a source of revenue for operators who terminate more traffic on their networks (usually incumbents and larger operators). On the other hand, it is an item of cost for small operators and new entrants.
Newer policies such as Bill and Keep method (BAK) would help preserve competition, it added. BAK entails net IUC payment as zero. Here, each network agrees to terminate calls from the other network at no charge.
For example, when a Jio subscriber makes a call (originator) to an Airtel subscriber (receiver) or vice versa, as per the agreement between Jio and Airtel, there will be nor charges either way. It thus effectively ensures that no TSP recover its costs of operations from competitors and, thereby, would enable greater competition in the sector.
A direct corollary to above, is Customers win. The TRAI paper said that experience in other countries showed that reducing termination rates has benefitted consumers and enhanced competition. Going the full distance i.e. reducing terminating rates to zero by introduction of the BAK regime would help in immediately realizing these benefits, it added.
BAK will encourage flat rate billing and time differentiated charges, both of which will improve capacity utilisation and will be in the interest of consumers. It will also reduce the inter-operator off-net traffic imbalance, and thus could help in convergence to an equilibrium situation, the paper said.
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