Digital

Who Pays Whom? Getting to the Heart of Reliance Jio vs COAI

One could call the potential removal of termination charges an underhanded move by TRAI. This begets the question, should the telecom regulator and not market forces incentivise the adoption of Internet telephony?

Credit: Reuters

The debate over interconnection charges has proven to be a spark in the battle between incumbents and new players. Credit: Reuters

The Telecom Regulatory Authority of India (TRAI) in its consultation paper released last week tackles the subject of interconnection usage charges or ‘IUC’. Telecom service providers (TSPs) enter into commercial and technical arrangements with each other to facilitate interconnection.  Some of the issues associated with interconnection are agreed between TSPs while other protocols are determined by the regulator (TRAI) in order to finalise these arrangements.  One such important issue that needs to be decided by the regulator is the IUC.

IUC consists of several components, one of which is the termination charge. Termination charges are those charges payable by a TSP, whose subscriber originates the call, to the TSP in whose network the call terminates. 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.

Currently, as per the latest regulations governing interconnection charges, a termination charge of 14 paise per minute has been levied on wireless to wireless calls. This number was arrived at using what is called the calling-party-network-pays (CPNP) regime. On the other hand no termination charges have been levied on calls made from one landline to another or a smartphone to a landline. This follows the bill-and-keep (BAK) regime which TRAI thinks should be extended to wireless calls as well to encourage newer technologies like VoLTE and Internet telephony. TRAI believes getting rid of termination charges can reduce the major obstacles confronting Internet telephony.

Rise of IP Networks

Calls traditionally have been carried over public switched telephone networks (PSTN) using circuit switched networks. In circuit-switched networks the communication occurs over a dedicated path. Nearly ten years ago, voice over Internet Protocol or ‘VoIP’ started becoming popular, where the voice is carried in packets and no single, dedicated path is reserved for the call. In India, TSPs can provide VoIP services though interestingly they have largely decided not to enter this market.

That is not to say that TSPs aren’t making use of newer technologies, they are. Telcos use VoIP in the backend to connect with other telcos and deliver calls. Only none of them let consumers make VoIP calls. This is changing soon with Reliance Jio slated to provide voice over LTE (VoLTE) later this year, which is over an IP network. The reason incumbent telcos have chosen not to get into VoIP business could be because they get to earn so much more from traditional voice calls ( TSPs earn 36p on a voice call vs 6p through VoIP apps). That’s the reason most people have moved on to OTT VoIP applications  like Whatsapp and Skype for their international calls, it is significantly cheaper. This did ruffle the telcos’ feathers and they have been calling for licensing of such VoIP applications ever since.

All this has lead TRAI on a quest to incentivise TSP behemoths like Airtel and Vodafone to enter the VoIP market and provide Internet telephony services. Most notably, the regulator released a consultation paper on Internet telephony a few months ago where it suggested allocating numbering resources amongst other things to encourage TSPs to start providing VoIP services. Also, earlier this year, the Department of Telecommunications made an amendment to the Unified Access Service License (UASL) agreement which would facilitate interconnection between IP networks (VoIP and VoLTE) and circuit switched networks.

In last week’s consultation paper on IUC, TRAI suggests the possibility of terminating “terminating charges” altogether to facilitate migration towards next generation networks (NGN) like IP-based networks. TRAI suggests this possibility primarily as it is difficult to impose the existing IUC regime when calls originate in regular public switched networks but terminate in IP networks or vice versa. This of course is of particular significance now with Reliance Jio’s VoLTE services and BSNL’S FMT. BSNL earlier this year announced the launch of fixed mobile telephony services that would use the Internet to virtually convert international calls to domestic wireline calls.

The other reason TRAI wants to do away with termination charges and move towards the BAK regime as the regulator notes in consultation paper, is termination charges work as a disincentive to the deployment of IP-based telecom networks by the TSPs. This is because termination charges form a significant amount of revenue for incumbent TSPs. Telcos have no good reason to move on to VoIP when they can earn so much from termination charges on voice calls. TRAI on the other hand wants TSPs to move on and start developing their technology and start providing VoIP services instead.

One would call this an underhanded move by TRAI. Getting rid of termination charges to force TSPs to bit the bullet and start providing Internet telephony. This begets the question, should TRAI as a regulator be doing this and not let free market forces decide? In TRAI’s defence, the TRAI Act after the amendment in the year 2000 does state that it has a duty to protect the interests of consumers. Since 2006, UASL and CMTS licensees could provide Internet telephony (2013 for Unified License) and they have deliberately chosen not to. Telcos in India enjoy considerable power and are unlikely to do something they don’t want to do. TRAI as a regulator here can’t be blamed for trying to nudge them along. Though one could argue that there are better ways of going about it.

COAI v. TRAI

The Cellular Operators Association of India (COAI) cried itself hoarse few days ago terming TRAI’s consultation paper to be “unfair on incumbent operators” and serving the interest of new players (hint: Reliance Jio). This when several COAI members like Airtel and Vodafone have already brought TRAI to court last year over the slashing down of termination charges in 2015 stating that the act was ultra vires the provisions of the TRAI Act.  All this because telcos do not want termination charges to be done away -with or reduced even as it would affect their revenues. TRAI since then has hit back at COAI calling their accusations baseless. An impending showdown is on the cards no doubt.  

The other, more interesting complaint made by COAI relates to the timing of the review of IUC by TRAI when new rates were announced only last year. COAI here raises a valid question about the working of TRAI when it comes to formulating new regulations. Again in TRAI’s defence, they had stated in the latest regulations governing IUC (the 2015 IUC Regulations, 11nth Amendment) that a review of charges will be undertaken and concluded in 2017-18 due to technological and other changes.

That said, there should be a method to consulting and how TRAI goes about instituting regulatory changes. While the TRAI Act provides that the regulator will ensure transparency when discharging its functions, there is nothing in the Act that suggests how its consultation processes will be carried out. One can’t blame telcos for wanting a smooth regulatory environment to function in. Interestingly one of the reasons that TRAI’s call drop regulation was struck down was due to the weak consultative procedures in place (as Rajya Sabha MP Rajeev Chandrasekhar notes in his petition seeking an amendment to the TRAI Act). Take this for a case study. TRAI issued a regulation penalizing TSPs for call drops when TSPs pointed out that call drops could be attributed to consumers as well during consultation. Later TRAI acknowledged this in a technical paper too. And yet TRAI went ahead and instituted the Call Drop Regulations without responding to the TSPs’ arguments. While it is fair for a regulator to call the shots and intervene when they want, the same has to be done in a well-thought-out , reasoned and systematic manner.

Method to consulting  

The Supreme Court call drop judgement noted that TRAI needs to document its reasoning before arriving at new regulations. To do this it is imperative that TRAI issues detailed guidelines on consultation processes similar to the UK regulator Ofcom, setting principles on processes before, during and after consultation. Specifically TRAI needs to set detailed timelines for their different consultations so as to provide clarity to stakeholders and be held accountable.

It remains to be seen whether the TRAI would take a drastic step like eliminating termination charges altogether. TSPs however need to get into the business of providing Internet Telephony in India soon to provide consumers with more choices. Importantly there is no denying that TRAI needs to become more transparent in its attempt to set new regulations like IUC to avoid a fiasco similar to the call drop one.

Madhulika Srikumar is a lawyer working in New Delhi.