TRAI slashes IUC: Big telecos to feel the pinch, but will your mobile bills come down?

The telecom regulator TRAI (telecom regulatory authority of India) has reduced the interconnection usage charges (IUC) on mobile-to-mobile calls from 14 paise per minute to 6 paise per minute, a sharp cut of 57 per cent. The lower rates will come into force from October 1. IUC, to simplify, is the amount paid by one telecom operator to another for facilitating voice calls for its customers. For instance, if an Airtel cellular customer is calling a Vodafone India cellular customer, Airtel will have to pay 6 paise to Vodafone for carrying a call to its network.

The interconnection charges for other types of voice calls - mobile-to-landline, landline-to-landline and landline-to-mobile - were brought down to zero in February 2015. Telcos in India don't specifically share their income from IUC charges but it is one of the main sources of their revenues. A reduction in IUC charges would impact their topline and bottomline.

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It is believed that telcos with more subscribers, such as Airtel and Vodafone, will be at a loss because their larger subscriber base is going to - cumulatively - make more voice calls to other networks than the calls made by customers of smaller operators. Some argue that operators such Reliance Jio, Reliance Communications and Tata Teleservices are expected to benefit from this move. Lead by Airtel, older telcos had long argued against their cost of carrying incoming calls is far higher than 14 paise.

As per COAI (Cellular Operators Association of India) figures, Airtel had 281 million subscribers in August followed by Vodafone (208 million), Idea Cellular (191 million) and Reliance Jio (128 million).

So why did TRAI reduce the IUC charges? There are no clear answers. There are two stakeholders involved - customers and telecom operators - when it comes to IUC charges. Take consumers for instance. Since IUC charges are applicable to just voice calls, the consumers are not likely to benefit because voice calls are offered for free by almost all telecom operators. The tariffs of telecom operators are based on data usage. One can argue that voice call charges are also factored into the current tariffs but telcos can argue that if voice calls are offered for free, there's no way they can reduce the existing tariffs because of lower IUC charges. In short, the chances of tariffs going down seem improbable.

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The government introduced IUC charges in 2003 on purpose to ensure continuous investments from telecom operators in network expansion and upgradation. The hyper-competitiveness in the sector has led to significant investments by all telecom operators over the past few years. Take the case of Airtel. In 2015, it launched Project Leap, a massive Rs 60,000-crore network transformation programme spanning three years. Vodafone India received equity infusion of Rs 47,700 crore from its parent Vodafone Group last year - the highest FDI investment in India till date - to buy additional spectrum and to upgrade networks.

If telcos are investing on infrastructure on their own, the need for IUC is long gone. Does that make IUC charges redundant? TRAI has said that IUC charges will be removed completely from 2020. Incumbent operators say that lower IUC charges will impact them as their existing cost structures are built around income from IUC as well. While the hue and cry from older operators about losing income from lower IUC charges is evident; their outgo on account of diluted IUC charges will also come down - a fact that's hardly been discussed in the IUC debate.

Also Read: Cut in call connect charges retrograde move: Vodafone