Trai cuts cross-network connection charge: Advantage Jio, more worry for Airtel and Vodafone-Idea

The Indian telecom industry has been witnessing tectonic shifts for the past one year. In the latest development, the Telecom Regulatory Authority of India (Trai) has cut interconnection usage charges (IUC) levied by telecom firms by 57 percent to 6 paise per minute from 14 paise.

The move is going to be a big worry for companies like Bharti Airtel and Vodafone-Idea Cellular as it will render a loss of over Rs 4,000 crore annually to the two big telecom service providers, while the benefitting Reliance Jio will annually save around Rs 5,000 crore, Financial Express reported.

While a cutting the IUC rate, the authority added that the termination rates will be abolished from January 1, 2020. Trai believes that the reduction of the charge, levied by a telecom operator for terminating a call from another telco will benefit consumers and boost competition.

Airtel and Vodafone-Idea Cellular pocket thousands of crores of rupees from ICU and were rooting for a hike. Airtel, the country's biggest telecom company, collected Rs 10,279 crore last year on ICU charges, which contributes about 14 percent to 18 percent of their operating profits.

Former Trai chairman Rahul Khullar told FE that nowhere in the world has the termination rate been made zero by law. He said that the only country where there is a BAK (bill and keep) model is the US but there also it is not by law but due to agreements among operators since the traffic flow is near-equal.

"The history of interconnect usage charge has always been contentious and ends up in courts. Such a drastic cut when there's heavy traffic imbalance is sure to be challenged in courts, which would be bad for the sector," Khullar added.

Bharti Enterprises chairman Sunil Mittal had earlier written a letter to Trai chairman RS Sharma, saying, "The current IUC regime is already well below cost," and asked the regulator to set the rate at "costs discovered through a fair and transparent mechanism."

"We are disappointed with this decision and are now considering our options in response to it. 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.

Commenting on Trai's move, Rajan Mathews, director general of lobby group Cellular Operators Association of India, told Hindustan Times: "It is disappointing for the majority of our membership."

He added that the telcos would want "details used to arrive at the 6 paise figure". The most affected telcos would seek redressal from the courts in order to reverse the order, which would be decided on Wednesday.