'Lowering interconnect charges risks large-scale shut down of telecom networks'

Vittorio Colao, CEO of Vodafone Plc, has told the telecom minister that any move to reduce interconnect charges would lead to large scale shut down of unprofitable networks in India.

"Any move to further reduce mobile terminate charges risks destroying the very companies that have invested to build this industry, " Colao wrote in the letter.

"The existing rate of 14 paisa is already below cost. This damages the economic case for connecting rural areas because traffic is largely from urban to rural, with little call origination revenue in rural areas. Even at the present MTC rates, 15-20% of our sites run at a loss. Any reduction in MTC risks large scale site shut-down of already unprofitable sites in rural India and which would greatly diminish the population coverage of mobile telephony," he added.

Earlier, Airtel Chairman Sunil Mittal and Chairman of Aditya Birla Group Kumar Mangalam Birla had also written to the TRAI seeking no reduction in IUC charges.

These letters come amid a debate within the industry, initiated by TRAI, on the future of interconnection charges. Under the current regime, the operator on whose network the call originates pays 14 paisa to the operators on whose network the call terminates. This money is paid because the operator, on whose network the call ends, carries the call on its network from an exchange to the end user. This requires the operator to invest in setting up infrastructure.

However, newer operators such as Reliance Jio has been pushing for a ‘Bill and Keep’ model wherein the interconnection charge is reduced to zero. RJio has a greenfield 4G network that allows it to offer voice calls practically at zero cost.

If this model is adopted, incumbent operators stand to lose on the termination fee they collect. That’s because the incoming calls into an incumbent operator’s network is always higher than the incoming calls into a new operator’s network.

As a result a new operator ends up being a net payer of termination fee. Arguing against the Bill and Keep model, Colao said "It is relevant to note that nowhere in the world do Bill and Keep (BAK) and CPP regime co-exist as is being proposed by new operator. In BAK regimes, the consumers pay for incoming calls, which is unrealistic for Indian consumers."

Challenging the stand taken by RJio, the Vodafone CEO said "there is a view being propagated by the new entrant that as a 4G-only operator, it has a cost advantage in the region of 70 per cent compared to the established 2G/3G/4G operators. There is no evidence – either Indian or international to support such a claim. If this was indeed true, there would be a number of 4G-only operators emerging around the world, which is not the case. It may be noted that the costs of the new entrant are higher than any other operator, whether in terms of employees (approximately double Vodafone India when including outsourced employees) or infrastructure (significant sole tenancy approach vs the tower sharing approach adopted by other operators)."

"It is undesirable for a critical core industry like telecom to be regulated based on the ambition of a new operator with no history of financial sustenance," Colao added.

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