After remaining absent from the telecom scene for seven years, Mukesh Ambani too has now jumped into the ongoing ‘telecom war’ over the abolition of termination charges.
In doing so, Ambani’s Infotel Broadband — the holder of the only pan-India wireless broadband license — has lodged itself of the opposite side of big incumbents like Sunil Mittal’s Bharti Airtel, Vodafone Essar and Idea Cellular. Interestingly, the battle has pitted the elder Ambani brother in the same camp as his sibling Anil as new operators try to get the ‘termination charge’ abolished.
The charge, called termination or interconnect charge, is paid by one network to another when handing over a call to a subscriber on the latter’s network, to cover costs of connecting (or completing) the call.
Big operators such as Bharti Airtel, Vodafone and BSNL want to have high termination charges as most of the current subscribers are on their network and therefore they get a lions share of all the termination charges paid by all operators in India.
Smaller and newer operators, including Uninor (which has accused the big ones of ‘unfair trade practice’) and the Ambani brothers are at a disadvantage as the termination charge of 20 paise per minute prevent them from offering call charges lower than around 30 paise per minute — as they have to pay 20 paise per minute to the ‘receiving network.’ Lower termination charges usually lead to lower call rates.
While the Telecom Regulatory Authority of India (TRAI) wants to bring down the termination charge (also called interconnect charge or IUC) to lower overall tariffs, big operators claim that even 20 paise per minute is not enough to cover their costs of terminating or connecting the call to their subscriber.
On the other hand, new operators say that the figure should be more in the range of 5-10 paise per minute since that is all that it costs to connect a customer and complete the call.
Joining the battle, Ambani senior’s Infotel has suggested a novel way to crack the puzzle. In its submission to the TRAI, Infotel has suggested that TRAI should not go by what either group of operators claim — but by their financial results.
Simply put, Infotel argues that all the big operators declare the cost of running their networks to their investors every quarter. TRAI also knows how many minutes of calls happen on each of these operators’ networks. Therefore, to find out how much is the total cost of a call, one simply needs to divide first by the second.
Some more multiplications and divisions can be applied to isolate out the cost of completing the call (as distinct from the cost of originating or starting it, carrying it from one city to another etc..)
Interestingly, using this method, Infotel has arrived at a mobile termination cost of just 8.5 paise per minute — very much within the range that new operators have been demanding. ” TRAI should not go for any costing method which is likely to be challenged by operators thereby creating business uncertainty and denying competitive tariffs for consumers,” it requested the Authority.
While bigger operators such as Bharti Airtel and Vodafone Essar are demanding that the ‘costs’ used in calculating the termination charge should also include the fresh investments that they are making every quarter, the Mukesh Ambani firm countered them. The firm also suggested that the first option should be to get rid of the termination charges entirely and move towards a simpler regulatory regime.
A large part of the money spent by mobile operators goes towards creating new towers and sites to expand their network. Adding this ‘CAPEX’ to the overall costs of the operator would result in a higher termination charge than if it were left out. CAPEX usually finds its way back into the costs when the money spent on instruments and towers are “written off” as “depreciation charges” and included in the normal (operating) costs bit by bit.
“There is no reason for including CAPEX [Capital Expenditure] in calculating or estimating termination charge. For any operator, termination charge is only one of the sources of revenue and there are various other streams of revenue such as rental, origination charge etc. Origination charges are under forbearance [uncapped] and operators are free to decide retail tariff so as to recover all costs.
“If CAPEX is also included in the calculation of termination charges, it will amount to undue enrichment of operators at the cost of affordability of services as the entire cost of an operator will get transferred to the interconnecting operator,” it warned.
Infotel also pointed out that India has held on to the same termination charge of 20 paise per minute for 2009.
“Regulators around the world have been reducing termination charges in order to maximize consumer welfare and operator efficiency… While in India the IUC charges have remained almost static and are not in line with many regulatory and operational developments,” it urged.
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