Business

Reliance Set to Benefit as Telecom Regulator Cuts Termination Charges

Incumbents Airtel and Idea, for whom net IUC income accounts for roughly 15% of their wireless business, are likely to be hit hard.

A woman checks her mobile phone as she walks past a mobile store of Reliance Industries' Jio telecoms unit, in Mumbai, July 11, 2017. Credit: Reuters/Shailesh Andrade

A woman checks her mobile phone as she walks past a mobile store of Reliance Industries’ Jio telecoms unit, in Mumbai, July 11, 2017. Credit: Reuters/Shailesh Andrade

New Delhi: The Telecom Regulatory Authority of India (TRAI) on Tuesday cut interconnection usage charge (IUC), or the charges that operators pay when their customers terminate calls on the networks of their competitors, to 6 paise per minute from the current 14 paise rate.

It is a move that experts say will prove to be yet another bone of contention between new telecom entrant Reliance Jio and incumbents Airtel and Idea.

“Mobile call connection charge cut to 6 paise per minute from 14 paise currently, effective October 1,” TRAI said in a regulation note released on Tuesday evening.

The telecom regulator also added that it would totally phase out call termination charges from January 1, 2020.

Over the last year, IUC has been the focus of a bitter battle between Jio and Airtel, with established telcos wanting the IUC to be raised to 30 paise and with Jio wanting it cut completely.’

How does IUC work? Essentially, if a call originates on Vodafone’s network and terminates on Airtel’s network, Vodafone would have to pay Airtel a termination charge. This is also known as the calling-party-pays regime which India has followed since the 2003 IUC Regulation.

According to analysts, net IUC income accounted for roughly 14% and 18%, Aitel and Idea’s wireless businesses in India in the June quarter. Experts say that with the fee cut to 6 paise, the operating profit of both companies can plunge by up to 10%.

Why does Reliance Jio benefit? Because currently the outgoing traffic on Reliance Jio is much less when compared to its incoming trraffic. Analysts have noted that based on the 14 paise per minute rate, Airtel received around Rs 500 crore as IUC from Jio in the April-June 2017 quarter.

Legal battle?

Cellular Operator’s Association of India (COAI) head Rajan Mathews has indicated that the incumbent industry will challenge TRAI’s directive in court, as it has done with other regulations such as over the issue of dropped call compensation.