Interconnect Charges – Indian Telecom Oligarchy makes way for Jio, victimizes Airtel / Vodafone

The Republic of India is known as the “Largest Democracy” in the World but when it comes to lucrative sectors such as the Telecommunications / Military / Defense, etc it is the oligarchy that prevails, wins and runs the nation.

TRAI the so called Indian Telecom Regulator is a parasite organization run on ideas contributed by intellectuals outside it and all that TRAI does is try to maintain veto power. In the recent Interconnect Usage Charges revision consultation paper, we purposely refrained from presenting our thoughts to TRAI as it was sort of pre-decided that Reliance Jio will have its way and the incumbents are refusing to come out of their lethargic style of functioning and embrace innovation despite repeated requests & warnings as well.

InterConnect Usage Charges Down by 57%
TRAI has announced a cut in mobile termination rate (MTR) (1) to 6 paise/min from the current 14 paise/min effective October 1, 2017. This issue was on for nearly a year now and there was an increasing sense of inevitability about an MTR cut.

MTR is inter-operator settlement for off-net calls. Cross-network traffic asymmetry between operators means that some operators are net interconnect (IC) earners while some are net interconnect payers at any given point in time. For a given volume of minutes, a lower MTR benefits the net interconnect payers in the market at the expense of the net interconnect earners. It is no secret that there is massive traffic asymmetry between R-Jio and the incumbents at this point. R-Jio is running a massive IC bill while the IC EBITDA for incumbents has gone up sharply since Jio’s launch.

At a per-consumer level, on a 100 mn sub base, a saving of US$550-600 mn translates into roughly Rs30-33/sub/month. Whether Jio retains the benefit or chooses to pass on some or all of it to the consumer is tough to say. However, that this move by TRAI opens up the possibility of Jio becoming more aggressive is a clear negative for incumbents in our view.

Telecom Oligarchy & TDSAT Court Battles
This is the second instance of the incumbents being unable to get their (logical, to us) view on an important regulatory development accepted by the Government led by Narendra Modi. The first instance was renewal of extant spectrum; regulator’s decision to auction in-use spectrum made the renewal auctions a business continuity issue and led to hefty spectrum payouts. Each such regulatory decision chips away at any incumbency advantage. Managing the regulatory side of the equation on grey areas like IUC is critical and incumbents have not done a good job here. Airtel, Vodafone and Idea Cellular have the option of challenging TRAI’s decision at TDSAT or in the courts.

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