The Telecom Regulatory Authority of India on Tuesday cut the mobile termination rate by a massive 57% to 6 paise per minute from the current 14 paise per minute, a move that would render a loss of over Rs 4,000 crore annually to the three big incumbents — Bharti Airtel, Vodafone and Idea Cellular — while leading to an annual saving of around Rs 5,000 crore for Reliance Jio. While the new rate, which would come into effect from October 1, is sure to be challenged in courts by the other players in the industry, Trai for the first time also laid out its future course of action by stating that termination rates would become zero (bill and keep or BAK in technical parlance) from January 1, 2020. The termination rates were last revised by Trai in March 2015 when it was lowered from 20 paise per minute to 14 paise and the regulator had stated that the rates should be reviewed after a period of two years.
Industry analysts told FE that the cut in termination charge announced by Trai was very sharp and ideally it should not have been more than 20-25% to around 10-11 paise per minute. More shocking for the analysts was the move to announce BAK from 2020 when it is difficult for the industry to totally move to VoLTE network where call delivery rates are very low. Former Trai chairman Rahul Khullar told FE that nowhere in the world has the termination rate been made zero by law. He said that the only country where there is a BAK model is the US but there also it is not by law but due to agreements among operators since the traffic flow is near-equal. “The history of interconnect usage charge has always been contentious and ends up in courts. Such a drastic cut when there’s heavy traffic imbalance is sure to be challenged in courts, which would be bad for the sector,” Khullar said, adding that in a sector where changes are rapid, laying down a law that would be enforced in 2020 is not good.
The cut in the charge runs contrary to the demands made by incumbent operators like Bharti, Vodafone and Idea, which wanted the termination rate to be raised and benchmarked against the actual cost, which is around 30-35 paise per minute according to them. Quite to the contrary, Reliance Jio was seeking waiving of the charge, saying it will benefit consumers. A termination charge is paid to the operator on whose network the call terminates by the originating network. This charge has been on a declining trend for the last several years. However, the entry of Reliance Jio last year and its free services led to asymmetric calls — around 92% calls from Jio terminate on the networks of incumbents while only 8% calls of the latter terminate on Jio’s network. This led to demands by the incumbents to raise the termination charge as it is below cost, which has led Jio to choke their networks. According to estimates by Kotak Institutional Equities (KIE), a 50% cut in termination rates would have meant a direct 5.5% hit to Bharti’s quarterly Ebitda and 8-9% for Idea.
On the other hand, for Jio it would mean an annualised saving of Rs 2,700 crore. KIE had estimated that Jio’s net interconnect bill currently runs at around Rs 4,500 crore per month. Similarly, KIE had estimated the if the rate is made zero, for Bharti 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 the hit would be around 16-17% or Rs 1,100-1,200 crore per quarter. However, for Jio it would mean a saving of nearly 7,000-7,500 crore in its interconnect bill on a quarterly basis. The wireless Ebitda of Bharti and Idea have been declining sequentially since April-June quarter FY17, which was the pre-Jio launch period. For instance, in Q1FY17, Bharti’s wireless Ebitda was at Rs 6,400 crore, which dropped to around `4,400 crore in the April-June quarter of FY18. Jio had last year launched its services from September 5.