1. In fight with Reliance Jio, Idea Cellular takes this surprise path

In fight with Reliance Jio, Idea Cellular takes this surprise path

As the Telecom Regulatory Authority of India (Trai) gets into the final lap to finalise the new interconnect user charge (IUC), the country’s third largest telecom operator, Idea Cellular, on Thursday dashed off its second letter to the regulator, offering its solution on the matter, for which it is open to further discussions with the Authority.

By: | Mumbai | Published: September 15, 2017 5:54 AM
reliance jio, idea, idea move to tackle reliance menace Putting his case for not moving to a BAK model, which suits just one operator (a reference to Reliance Jio, which has a fully-Volte network), Kapania has offered two solutions on fixing the new rates. (Reuters)

As the Telecom Regulatory Authority of India (Trai) gets into the final lap to finalise the new interconnect user charge (IUC), the country’s third largest telecom operator, Idea Cellular, on Thursday dashed off its second letter to the regulator, offering its solution on the matter, for which it is open to further discussions with the Authority.

Since the general perception is that Trai wants to move to the bill and keep model for termination rates (which means zero), as against 14 paise per minute currently, because the cost of termination on 4G Volte network is very low, Idea Cellular’s managing director Himanshu Kapania, in his letter to Trai chairman RS Sharma, has said that today more than 95% of the voice calls terminate on non-VoLTE networks. He has written that VoLTE-based 4G termination of calls is less than 5%.

Putting his case for not moving to a BAK model, which suits just one operator (a reference to Reliance Jio, which has a fully-Volte network), Kapania has offered two solutions on fixing the new rates. He has said that the authority can bifurcate the total traffic terminating on Volte and non-Volte networks, and then on the basis of cost data and weightage between the two types of networks arrive at the new rates.

Alternatively, he has suggested that each operator segregate the traffic terminating on Volte and non-Volte networks and accordingly, the authority fixes the rate for the two on real-time traffic trends.

Prior to Kapania’s letter, Aditya Birla group (owners of Idea) chairman Kumar Mangalam Birla had also written a letter to the Trai chairman on August 21, basically urging the regulator to share its costing methodology with the operators so that the consultation process could take place in a transparent manner.

Speaking to FE, Kapania said that it is a “myth” that termination cost of 4G network is cheaper or 4G VoLTE is cheaper.

He said that first and foremost, the termination cost of the above should be verified, which is not verified as of now. “If the government verifies the cost and it is found to be lower — then the traffic between 2G, 3G and 4G is 95%, while traffic between VoLTE is 5%. Our cost is 30 paisa and assume the VoLTE cost is 20 paisa, though we do not know what it is, so one way to resolve this is to use weighted average and arrive at an IUC rate.”

He said Idea’s choice is the proposal of weighted average cost for determining the IUC rates, but it would be okay in case the regulator decides for the second option.

He said that a BAK regime would benefit only one operator at the cost of all other existing operators due to persisting high asymmetry of voice traffic in the range of 9-10:1, even after one full year of operations and a large subscriber base.

According to rough estimates drawn up by Kotak Institutional Equities, if mobile termination rate is made zero for Bharti Airtel, it would mean a direct hit of 10-11% or Rs 1,800-2,000 crore to its wireless Ebitda per quarter. Similarly, for Idea Cellular, the hit would be around 16-17% or Rs 1,100-1,200 crore per quarter.

However, for Reliance Jio it would mean a saving of nearly Rs 7,000-7,500 crore in its interconnect bill on a quarterly basis.

According to Kotak’s estimates, even if there is a 50% cut in termination rates for Bharti, this would mean a direct 5.5% hit to its Ebitda and 8-9% for Idea. Quite the contrary for Jio, it would mean annualised saving of Rs 2,700 crore. Kotak has estimated that Jio’s net interconnect bill currently runs at around Rs 4,500 crore per month.

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