Reliance Jio says rivals made Rs1.2 trillion from interconnection user charges in 5 years

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New Delhi: Reliance Jio Infocomm Ltd has claimed that India’s top three telecom firms have generated as much as Rs1.04 trillion in revenue in the past five years on account of non-implementation of a 2011 Telecom Regulatory Authority of India (Trai) road map to cut interconnection user charges (IUC) to zero.

Reliance Jio was referring to the 2011 report on IUC by Trai that was filed as an affidavit in the Supreme Court. In the affidavit, Trai told the court that it wanted to bring down IUC to zero from March 2015. This road map was also part of 2009 Trai regulation on IUC that excluded capital cost while calculating the charge.

Challenging the move, the telecom firms approached a telecom tribunal, which upheld their demand. Thereafter, Trai moved the Supreme Court, which upheld the tribunal’s decision that capital cost should be included in calculating IUC.

After consultations, Trai in 2015 cut IUC to 14 paise from 20 paise; and while doing so indicated that the termination charges would be reviewed after two years of being in force.

Meanwhile, Cellular Operators Association of India (COAI), the industry lobby that is accused by Reliance Jio of favouring the top three telecom firms, has written to Trai asking it to postpone an open house discussion on IUC to a date which is at least four weeks after the regulator shares the cost models and assumptions it has made during the consultation process. Mint has reviewed a copy of the COAI letter.

In a presentation on Tuesday that Mint has reviewed, Reliance Jio said that benefits to incumbents Bharti Airtel Ltd, Vodafone India Ltd and Idea Cellular Ltd have come at a cost to consumers and smaller operators and resulted in financial distress in the sector. Reliance Jio said all the investments made prior to 2010 have been recovered by industry and the top three telecom firms have generated excess returns on account of IUC charged over the years.

“If we rewind the clock and assume implementation of BAK (Bill and Keep model) as recommended by Trai in 2011, the smaller operators would have given fair competition to incumbents and there would not be any stress in the system,” Jio said, adding there is no real logic for IUC to continue. In BAK, companies only keep a record of incoming calls but don’t raise any demand from other operators.

For every mobile phone call, the firm that originates the call pays 14 paise to the one which receives the call, called interconnection user charges.

Jio proposed zero IUC charges on Tuesday, while the other three presented their cost structures to press for a hike in IUC to at least 30 paise.

“IUC is an artificial barrier created by incumbent operators with legacy technologies… It is a subsidy for old operators who do not move to new technologies. Effectively, their inefficiency is being funded,” Jio said.

An email sent to Bharti Airtel Ltd, Vodafone India Ltd, Idea Cellular Ltd and Reliance Jio seeking comments remained unanswered.

Countering Reliance Jio’s arguments, Idea Cellular told Trai that high volumes of incoming calls on account of free voice calling offered by Jio have forced it to match unlimited voice and data usage to stay competitive.

“Free services, followed by below-cost pricing, have resulted in Idea converting to a loss-making business,” Idea said in a presentation to Trai on Tuesday. Mint has seen a copy of the presentation.

“Based on May 2017 voice traffic, Idea’s annualized loss was Rs2,253 crore, out of which Rs2,086 crore was from Reliance Jio alone,” Idea said in the presentation.

Jio countered Idea’s argument and said that the concept of traffic asymmetry to justify IUC is contrary to all economic rationale and is an attempt to hide inefficiencies of the network to gain more subsidy.

“When an operator is more efficient than another—in this case, the other operator has to either improve its cost economics or will lose market share,” Jio said.

However, Idea said abolishing IUC will not have any sustained price impact on consumers.

“Fair and full cost-based IUC will incentivize operators to commit fresh investment. Below-cost IUC will be a risk for long-term investments,” Idea said.