Time to kill IUC, it cannot be treated as revenue source for telecom firms, say experts
An abolition of IUC will take off 45 percent of the call charges to consumer in an ideal pricing regime
New Delhi: The debate over interconnect usage charge (IUC), money telecom companies pay to each other to complete voice calls, has taken an interesting turn with the sector regulator considering a total abolition of this charge.
This article says telecom regulator TRAI is “actively considering a proposal to completely phase out” the 14 paise IUC. It goes on to say that the beginning could be a sharp 50% cut to 7 paise per minute. “Sources say the regulator is analysing the impact of first cutting the IUC to 7 paise, then to 3 paise and then bringing it to zero.”
If this were to become a reality, the IUC free world could mean a reduction in tariffs for the telecom sector, surely a relief for consumers. The decision of the regulator could come any day now.
The IUC regime is anyway living on borrowed time as India moves to 4G technology that carries voice in the form of data; the abolition of IUC would largely impact incumbent operators who still carry voice calls on the 2G/3G networks.
In a discussion on the subject by CNBC-TV18 last evening, three of the four participants were strong votaries for a reduction and then complete abolition of the IUC. The IUC regime is the mobile termination charge that a caller is made to pay by her service provider.
This charge -- currently 14 paise per minute -- is then forwarded by the calling party’s service provider to his competitor, on whose network the call ends. As an example let's take the case of an Airtel user calling an Idea user. Here Airtel is using the network facilities of Idea to make the call happen, so it will have to pay 14 paise per minute to Idea. Thus Airtel pays Idea 14 paise per minute to carry that call, which comes to about 45 percent of the retail price for each call at present. The reverse is true when an Idea user calls an Airtel user, so Idea will pay IUC to Airtel.
This essentially means an abolition of IUC will take off 45 percent of the call charges to consumer in an ideal pricing regime.
At its peak in 2003, the mobile termination charge was 50 paise per minute, which has progressively been reduced to the present 14 paise per minute despite stiff objections by telecom operators, who have traditionally cited huge costs for completing voice calls as the primary reason for this charge to continue. The ET piece quoted above says net IUC income accounted for
nearly 14% and 18 percent of the domestic wireless income earned by market leader Bharti Airtel and Idea Cellular respectively in the April-June quarter.
Along with Vodafone, these two telecom companies are the major votaries for not just continuing with IUC but actually increasing the levy from the 14 paise per minute rate.
In the CNBC-TV18 discussion, MTNL’s former CMD, RNP Sinha, as well as the former CMD of BSNL, RK Upadhyay, said the IUC regime was past its expiry date and needed a quick burial.
“The only solution is that you make it as bill and keep (B&K) and the IUC charges should be made zero, they should not be recovered (from the consumer) and they cannot be treated as source of revenue,” Sinha said.
Citing 4G technology’s capability to transfer voice in data packets at minimal cost, he said that IUC should be scrapped. BSNL’s Upadhyay echoed the same sentiment, saying that telecom services alone weren’t going to be the sole revenue streams of mobile companies, the ecosystem moving to telecom plus digital services. It is interesting to note that both the state-run telecom companies had voiced opposition to lowering of IUC in the early 2000s, citing almost similar arguments as those being put forward by the big private telecom companies today.
“There will be no IUC regime in a completely packet based network. Today, you see, yes, it was mentioned that for some of the operators even today, the main revenue stream is voice which is true. But that revenue stream is already being taken away. Even with the current situation of IUC, more and more OTT services, they are taking away the voice revenue as well,” Upadhyay said.
Sanjay Kapoor, former CEO of Bharti Airtel conceded the demand by the incumbents to raise the IUC wasn’t fair. Making a case for the established operators – currently struggling with a cumulative debt of Rs. 8 lakh crores -- he said 5 Mhz spectrum in India cost $3 billion. He was referring to the incumbents’ plea that high cost of spectrum added to the cost of operation of telecom companies and they needed the IUC to recover some of those costs.
“Now you have to level that out somewhere to say if the spectrum is going to be priced at a level, how do we make it viable for the consumer not to be involved in any spat of IUC. Therefore consumer cannot be isolated. If the services are not up to the mark, if the operators are unable to sustain the levels of service, if they are unable to invest back into latest technologies and consumer experience, it is the consumer who will suffer. So, it is very difficult to segregate that,” he added.
COAI’s Rajan Mathew pointed out to the plight of the industry which he said needed a stronger support from the government. He said if as much as 30 paise of every rupee earned by a telecom company went to the government in the form of levies, “the government needs to do a lot more in terms of addressing the spectrum usage charge component and a licence fee component in terms of addressing the financial plight of the industry.”
Over the years, TRAI has been consistently bringing down IUC but in October last year it popped the big question through an industry discussion paper.
It asked if IUC be made zero and if the industry should transition to what is called Bill and Keep (BAK) system. BAK means exactly what it says; operators bill other operators but do not actually levy IUC. Under BAK, such charges are neither levied nor paid as they are supposed to get cancelled out due to call symmetry (similar number of calls originating and terminating on each network).
Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.
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