Airtel versus Reliance Jio. Who's right on the IUC debate?

Our Bureau Mumbai | Updated on September 26, 2019 Published on September 26, 2019

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Airtel and Reliance Jio have started a fresh debate over the issue of bringing interconnect usage charges to zero. While Airtel wants the charges to be increased from 6 paise a minute to 14 paise, Reliance Jio wants it to be brought down to zero by January 2020. BusinessLine has put together the differences between the two sides on key questions related to IUC.

    What is IUC?

    Airtel’s view: Interconnect Usage Charge (IUC) is the cost that a mobile operator pays to another operator for carrying through/ terminating a call. If a customer of Mobile Operator A calls a customer of Mobile Operator B and the call is completed, then A pays an IUC charge to B for carrying/ facilitating the call. Essentially, it is the originating network compensating the receiving network for cost of carrying the call. In India IUC is set by the TRAI. It is currently at 6 paise/minute, with a roadmap to bring it down to zero by January 2020.

    Reliance Jio’s view: IUC is nothing but a subsidy that new operators pay to incumbent operators, as incumbent operators have more customers and, therefore, receive more calls. It is also a subsidy that the more efficient operators pay to the less efficient operators. The less efficient operators charge higher tariffs from their customers, who, therefore, do not make outgoing calls but only receive incoming calls.

    In India, the operator who has spent over Rs 4 lakh crore in setting up a best-in-class network to reach the benefits of technology to all customers, and is actually providing free voice to all its customers, has been paying an IUC subsidy of hundreds of crores per month to incumbent operators, who continue to charge their customers high tariffs and do not want to invest in new technology. The incumbent operators have been manipulating the system to the detriment of the customers, so much so that in spite of the TRAI filing in the Supreme Court in 2012, the Bill and Keep regime has still not been implemented in India.

    What is asymmetry or symmetry of traffic between mobile networks and what role does it play in IUC?

    Airtel’s view: IUC is like a clearing house. One operator pays another to carry the call on their network. All these calls are aggregated and then a settlement is done at the end of the month.

    Asymmetry of traffic: A situation where operator A receives, say, 100 calls from operator B, while operator B receives only 60 calls from operator A, would be a case of asymmetric or unequal traffic between two networks. At the end of the month, operator B compensates operator A for a net of 40 calls completed on its network.

    Symmetry of traffic: If both operator A and B receive 100 calls from each other, then it would be a situation of symmetric or equal traffic between the two networks. In this case the payouts between the two operators are squared off.

    Reliance Jio’s view: No difference of opinion

    How is IUC determined?

    Airtel: IUC is determined by taking into account the cost of running a mobile network - rent for towers, the energy cost for running towers, spectrum costs and other such costs. The current IUC of 6 paise/minute is unable to cover these costs and the result is that most operators lose money while carrying calls from a 4G only operator that is now the country’s largest.

    Reliance Jio: All operators have had the chance to move to an IP framework for several years. IP-based voice calling (like VoLTE, OTT apps like Whatsapp, etc.) has near-zero cost. And, therefore, the benefit of technology must be passed on to the consumer. By not being able to upgrade legacy networks and continuing to exploit customers through 2G/3G call charges and holding them to ransom, incumbent operators continue to charge users Rs 1.50/minute for voice calls. On an IP-based network, the cost of voice is 0.05 paise per minute (as in the case of a WhatsApp call). Where is the need for IUC in such a case? The cost of old circuit switch networks may be higher. But then why do incumbent operators allow free calling on their own network (on-net calls)?

    Does tariff have anything to do with the IUC?

    Airtel: Tariff has nothing to do with IUC, which is essentially a clearing system between two operators, for carrying the calls made by one operator on the network of the other operator. So, the key is to pay for the cost of using the other operator's network. India has the world’s lowest mobile tariffs (and below cost). This has led to unprecedented consolidation, with eight operators folding up and a mega merger between two large operators. If, indeed, tariffs were high, this would not have happened.

    Reliance Jio: IUC is highly dependent on customer tariffs. If one operator charges a high price for voice calls (as incumbent operators do, charging at Rs 1.50 per minute), whereas another operator offers free voice calls, customers of the first operator are bound to give missed calls only and not complete calls, whereas customers of the more efficient operators would tend to make the calls. Therefore, the more efficient operator would end up paying IUC to the less efficient, costlier operator.

    Does IP technology have anything to do with cost of termination?

    Airtel: No, it has nothing to do with the cost. This is because the cost of energy, rental and spectrum is common and has nothing to do with technology. Anyway, since all operators now have IP technology/ networks, this issue is irrelevant.

    Reliance Jio: Airtel has only 18 per cent of its voice traffic and Vodafone only 5 per cent of its total voice traffic on IP. The inability to upgrade networks to 4G, and purposefully keeping subscribers on legacy 2G/3G networks to charge them Rs 1.50/min of call is not consumer friendly and is an artificial way to generate revenue.

    Why has TRAI come out with the IUC paper now?

    Airtel: TRAI had clearly stated that they would assess the extent of migration of traffic to all IP networks and symmetry (balance) of traffic before finalising the reduction in IUC from 6 paise/ minute to zero. This was two years ago.

    The ground reality is that there is still very high asymmetry of traffic between a large 4G only operator and the other operators. Despite Jio gaining more than 32 per cent market share, Airtel and Vodafone continue to be large net recipients of calls from Jio and, therefore, Jio pays them IUC for carrying these calls. Airtel’s traffic asymmetry with RJio still stands at approximately 65 per cent (incoming) versus 35 per cent (outgoing).

    TRAI has taken this into account and started a fresh consultation process to ensure the orderly growth of the telecom sector.

    Reliance Jio: It takes investment as well as technological advancement to be able to upgrade a network to 4G. Without having done that, there cannot be symmetry in traffic, as more than 65 per cent of incumbent customers are still on 2G/3G. Unfortunately, these customer do not even have the privilege of enjoying free voice calling. They end up paying exorbitant and excruciating rates for voice minutes (more than anywhere in the world), making India the lowest data rate market in the world, but the most expensive voice market.

    Hence, incumbents want the IUC regime to continue, where they continue to monetise both their legacy network and their customers, who are artificially suppressed to remain on a legacy network (due to 2G/3G devices that have not reached end of life).

    Why does one 4G only operator say network cost is lower?

    Airtel: Operators around the world follow a simple accounting standard, which uses established practices to decide what cost is capitalised in the balance sheet, and what is reflected in the profit and loss account. There are massive differences in the way this large 4G only operator in India does its accounting. So, the cost of a call must be determined according to globally established norms, rather than on the basis of the accounting practices of one particular operator.

    Reliance Jio: It has been demonstrated to all authorities that the cost of carrying calls on an IP network is close to nil. Accounting standards have nothing to do with cost of carrying a voice call.

    Take a simple example – any OTT call on your network, is simply using a few KBs of data. That is all you need to make a voice call.

    How much does this incumbent operator charge its customers for a call done using WhatsApp? It effectively charges less than 0.05 paise per minute? Is that because this operator uses a different set of accounting standards when it deals with OTTs?

    FYI, all leading telcos globally also offer free voice calls and have an IP-based network for doing so.

    Further, the large 4G only operator follows the Indian Accounting Standards. It is a blatant lie to say that the large 4G only operator does its accounting in any different way.

    Is one large 4G only operator gaming the IUC regime?

    Airtel: This could be true. For example, if one operator reduces the ringing time for outgoing calls to other networks (say from 45 seconds to 20 seconds only), it leads to a lot of customer inconvenience since the calls are cut-off even before the receiving customer has the time to pick it up.

    Seeing a missed call, the receiving customer calls back to the originating operator’s network. By converting such outgoing calls to incoming calls, one large operator is not only (a) getting IUC from other operators, but also (b) trying to reduce the asymmetry of traffic artificially. This is to show symmetry in traffic in the run-up to the proposed implementation of zero IUC w.e.f. 1.1.2020.

    Seeing this practice from a large 4G only operator, the TRAI has come out with a consultation paper.

    Reliance Jio: Firstly, the incumbent operators have a ringing time of 30 seconds, as opposed to the false statement made above (about 45 seconds).

    Secondly, globally, most operators have an average ringing time of only 15–20 seconds – this includes Vodafone UK.

    Third, 25-30 per cent of calls landing on the large 4G operator’s network are missed calls. Users from incumbents network who pay Rs 1.5/min for calls, request Jio users to make a free voice call to them by giving a missed call, thereby, creating this traffic mismatch. Incumbent operators create this mismatch and want to monetise it, too, by asking for 6p/min IUC revenue.

    Fourth, if all operators were made to upgrade their networks to 4G and charge their customers at par, there will not be any traffic asymmetry.

    It is actually the incumbent operators who are gaming the IUC regime by charging their 2G/ 3G customers high voice tariffs, as these customers are not able to move to the efficient 4G operator owing to not having a compatible device.

    Why does one 4G only operator say that reduction of the timer of the call improves spectrum efficiency?

    Airtel: This is not true at all, since spectrum efficiency has nothing to do with reduction in timer. If indeed spectrum efficiency was the reason, why has that large 4G only operator reduced the ringing timer (from 45 sec to 20 sec) for outgoing calls only to other networks, but kept it at 45 sec for calls made within its own network? It is quite evident that this has been done with the sole purpose of gaming the asymmetry of traffic and reducing IUC payouts to other operators.

    Reliance Jio: All calls, including onnet and offnet in Jio, have a call ringing time of 20 seconds. This can be checked by anyone.

    Will one large 4G only operator lose out on IUC given their growth of customers if IUC goes to zero?

    Airtel: You can look at the net IUC payments being made by that large 4G only operator to the other operators due to traffic asymmetry. If the IUC goes to zero, the said operator stands to benefit by approximately Rs 3,200-3,300 crore per annum.

    RELIANCE JIO: It is a known fact that with a growing base of customers, more calls happen onnet than offnet. With the current growth rate for the large 4G operator, onnet calls will soon surpass offnet by a good margin. Therefore, the question of losing to IUC being made zero does not arise in the near future.

    Regardless, the large 4G operator has always maintained that IUC should be scrapped, whether it stands to gain from it or not.

    Why does one large 4G only operator say that IUC is received by incumbent operators because their tariffs are higher?

    Airtel: This is again a classic case of obfuscation. Tariff has absolutely nothing to do with the cost of carrying a call. At any rate, that large 4G only operator's ARPU is higher than the industry average, showing clearly that many more low-income customers are on incumbent/other networks. If tariffs were higher for other operators, how could this be possible?

    Reliance Jio: Through artificial suppression, incumbents have held more than 65 per cent of their customers hostage to high voice call rates of Rs 1.5/min. Because of this, their customers are unable to afford outgoing calls, let aside enjoy the benefits of free calling. These customers are not able to move to the efficient 4G operator owing to not having a compatible device.

    Hence, these customers (more than 25-30 per cent of all calls landing on Jio), make missed calls to Jio users, asking them call back. This results in traffic asymmetry and leads to the large 4G operator paying higher net IUC.

    Classic case of old-world/legacy mindset of monetising from the customer like they once did with data and even VAS services.

    The fact that even low-value customer should be given the opportunity to make free voice calls @ Rs 49/month, as opposed to being charged even higher by incumbents (Rs 1.5/min) that gives them access to only 30 minutes of calls @ Rs 50, means the outgoing from these low-value customers on incumbent operators will be negligible.

    Published on September 26, 2019
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