Mobile Termination Charges / Interconnect Charges – Incumbent Vs New Operators – Cat and Dog Fight

Another Big Issue the Indian Telecom Operators are Lobbying [Read Bribing and Making the System Corrupt] for is the issue of “Mobile Termination Charges / Interconnect Charges“. India has followed the regime of Calling Party Pays – A charge where the operator from which the call originates pays to the operator on whose network the call terminates. TRAI wants to bring down the Termination Charges to Zero by moving to a new regime known as Bill & Keep – Operator Bills the Customer where call originates but Keeps the amount instead of transferring the same to the operator where call is terminated.

Incumbents led by Airtel, Vodafone and Idea are opposing the TRAI’s proposal to bring MTC to Zero thus making the business model of subsidized calls of new Operators unviable. Here are the contentions of both the sides.

Incumbents Voice on Mobile Termination Charges

• Cost based rates are efficient and cost based methodologies well established.
• Termination rates matter as they incentvise to invest in rural areas and serve low usage customers [Aam Admi, reminds me of Congress Politicians Pitch 🙂 ]
•  Taking Shelter Under – Telecommunication Interconnection (charging and revenue sharing)Regulation 1999 (1 of 1999)
•  India has a growing digital divide –which will require thousands of crores of investment to close the gap
• Bill & Keep is not widely adopted because it is flawed – USA, China etc are not Bill & Keep.
• Bill and Keep is neither a viable nor a simple interconnect arrangement; it is only relevant in very special circumstances
• Bill & Keep in Sri Lanka has not created affordability of telecom services – The initial cost of acquisition of mobile in Sri Lanka is 5 times higher than India
• What Does Below Cost MTC Mean ? In Urban Areas – Intense competition for high volume customers. Operators lower prices to drive outbound volumes increasing congestion and quality problems. In Rural Areas – Serving low usage customers becomes less attractive. All operators shift focus to defending share in urban centres. Affordability limits operators ability to increase revenue from rural customers. Lower investment in rural coverage.
• Uninor’s promoter Telenor is Defending MTC in Rest of the World and is Opposing in India.
• When MTC is 30ps it is below the cost of providing termination in Orissa. Every Extra Paisa of MTC will connect 5 Mn citizens in all “C” Category Circles
• On the ILD Circuit, there is a need to bring parity between what we pay & what we receive.
• And Finally a Big Demand – TRAI Must Introduce SMS Termination Charges 🙂

New Operators Voice on Mobile Call Termination Rates

• Pro-consumer and pro-growth regulatory policies can help achieve the vision of 1 bn subscribers
• But, MTC is tax levied on new entrants to subsidize incumbents – is it fair?
• Can an MTC regime that does not consider 3G/ BWA voice termination be permitted so close to its entry?
• Wireless penetration increases as MTC decreases. MTC has become the key reason for under-utilized network capacity
• Internationally, MTC has been reviewed and reduced significantly every 2-3 years
• High MTC is severely anti-consumer, both today and post MNP
• Tariffs have declined consistently since 2003 but MTC is same – At 2003 benchmark, MTC today should be 5 paise
• Arguments claiming MTC reduction will have no impact on usage and penetration are a misrepresentation
• Lower MTC improves affordability and can increase tele-density, especially in rural areas
• MTC = Rs 0.10/min means – 25% drop in average retail tariffs and 25% increase in MoU
• MTC = Rs 0 / Bill & Keep Regime Means – 35% drop in average retail tariffs and 35% increase in MoU
• Countries have reduced MTC by more than 50% in past 3 years
• High MTC encourage hugely differential on-net/ off-net differentials which are confusing to the customer
• Incumbents have clearly benefited from past regulation, should they be allowed to benefit yet again
• Cost plus method to determine MTC is no longer valid now
• Bill & Keep is prevalent in several international markets – Hong Kong
• Just because Europe has not adopted B&K does not mean it is not right for India
• TRAI can set asymmetric MTC – incumbent operator (8 paise) / new operator (22 paise)
•  Huge investments that telecom in India is getting, clearly shows that it is a long-term profitable sector; low MTC can increase profitability
• Reliance Communications and Tata DoCoMo back the claims of New Operators

Should TRAI Move India to a Regime of 5 Paise MTC in-line with the fall in tariffs or to 0 Paise MTC ? What Say ?