29 Aug 2017 13:10 IST

All you wanted to know about interconnection usage charge

Telecom players connect their equipment, networks and services with other service providers

The telecom industry continues to see heated action. This time players are up in arms over Interconnection Usage Charge (IUC). Regulator TRAI is considering a revision of these charges. Currently only calls made via wireless to wireless devices attract IUC in India. With all the telecom players except Reliance Jio supporting an increase in IUC rates, a battle is on the cards.

What is it?

The term ‘interconnection’ refers to an arrangement under which telecom players connect their equipment, networks and services with other Telecom Services Providers. The regulator, TRAI, addresses the various issues related to interconnection arrangements. It also regulates the IUC.

This is a charge payable by a service provider, whose subscriber originates the call, to the service provider in whose network the call terminates. In a calling-party pays regime (CPP), if you originate a call, you pay your access provider, who in turn pays termination charges to the network you placed the call. This is paid to cover the network usage costs as the operator, on whose network the call terminates, carries the call on its network to the customers. This requires infrastructure investment. Thus, IUC ensures operators make appropriate investments to carry voice calls without terminations.

At present, all the hue and cry is on termination charge one of the components of IUC. Other components include international termination charges, transit charges, international settlement rates, carriage charges and origination charges. TRAI, through telecom IUC charges regulation 2003, established the framework to be adopted by telecom players. The CPP regime was also introduced under this regulation.

Why is it important?

IUC is one of the main sources of income for telecom companies. Currently the domestic termination charge is at ₹0.14 per minute while the international call termination is at ₹0.53 per minute.

The incumbent players such as Bharti Airtel, Idea and Vodafone would prefer a hike in IUC or a status quo because a significant part of their network is still on 2G for which network costs are higher. Also most of the calls terminate on these companies’ networks. But the new entrant, Jio, would prefer lower or even nil termination charges as the number of calls originated by it are more than the calls terminated. TRAI is considering bringing down termination charges due to cost efficiency due to the adoption of 4G technology. However only Jio has full-fledged 4G network with others still operating on legacy networks. But the incumbent players are already in dire straits and this move can impact their finances negatively. For instance, Bharti Airtel, one of the largest operators, reported 75 per cent fall in profit in June quarter. The incumbents are stating that the termination charge of ₹0.14 is already too low and does not even cover the cost of carrying the call.

Why should I care?

You need to watch out for TRAI’s decision on IUC as it can impact your mobile bill. IUC has already reduced from ₹0.30 per minute in 2004 to ₹0.14 now, despite the protests of telcos. Scrapping IUC benefit customers as it could bring down call tariffs. On the other hand, if IUC increases, telecom players may increase the tariff for their call services.

The bottomline

Some think that reduction in the IUC is a bad idea while others disagree.

(The article first appeared in The Hindu BusinessLine.)