In a drastic move by Telecom Authority of India (TRAI), Interconnect Usage Charges or IUC has been slashed by 57%, and absolutely scrapped for all local calls starting January 1st, 2020.
Shares of telecom companies such as Bharti Airtel and Idea Cellular plunged up to 7.4 per cent today (20 September) after Trai reduced mobile interconnection charges by more than half to 6 paise a minute. "This is yet another retrograde regulatory measure that, unless mitigated, will have serious consequences for investment in rural coverage, undermining the government's vision of Digital India", Business Standard quoted Vodafone spokesperson as saying.
"From 1st January, 2020 onwards the termination charge for all types of domestic calls shall be zero", read the statement issued by the Trai.
The agency, however, said that the removal of the IUC will have a "much smaller impact" as the payment by Jio, which had a 9.6 percent subscriber share with 98 million customers in July 2017, for interconnections fees to incumbents will fall with the growth in subscriber base.
Markets where market forces, and not the regulator, determine interconnection charges, would lead to telecom operators trying to create a major disincentive for calling people on another network, and discriminatory charges against call-recipients of another network.
"We are disappointed with this decision and are now considering our options in response to it".
"An operator with higher proportion of off-net incoming minutes over off-net outgoing minutes benefits by way of net inflow of IUC revenues, and vice-versa", Harsh Jagnani, Sector Head and Vice President, Corporate Ratings, ICRA said.
The biggest benefactor of this decision will be Reliance Jio as the operator has more originating calls as the compared to the ones that are terminated to its network. Moving to BAK method will result in elimination of price differential between on-net and off-net calls and will reduce overall tariffs for customers. "It will encourage new players to be more competitive as they will be liable to pay less in interconnect as their subscriber base grows".
Kotak Institutional Equities said Jio, which now pays close to $1 billion in interconnection fees, would have annualized savings of $550-$600 million from the fee cut, translating to 30-33 rupees per user. Reliance Jio claimed that termination charges had helped established operators earn Rs 1 lakh crore. According to TRAI, the establishment of a clear outlook for IUC will provide regulatory predictability and enable service providers to plan their networks and businesses accordingly.
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