1. Charges against Trai reflects immature thinking; here’s why

Charges against Trai reflects immature thinking; here’s why

Recent media reports indicate that the cellular-mobile services providers association, Cellular Operators Association of India (COAI), has accused Trai of bias in favour of some particular operator.

By: | Published: August 31, 2016 6:21 AM
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Instead of following this legal recourse, some cellular operators have chosen to accuse Trai in the media.

Recent media reports indicate that the cellular-mobile services providers association, Cellular Operators Association of India (COAI), has accused Trai of bias in favour of some particular operator. This is unprecedented, since Trai has been created as an independent body and its independence has been proved time and again. It is also unprecedented considering the fact that multiple levels of appeal against Trai-decisions/regulations, in the form of challenge in the TDSAT, the high courts and the Supreme Court are available for any aggrieved party. Instead of following this legal recourse, some cellular operators have chosen to accuse Trai in the media.

It appears that a major reason is the recently-released consultation paper on IUC regulation. IUC or Interconnect Usage Charges is the commercial arrangement for interconnecting operators. As per the TRAI Act, Trai is empowered to issue regulations in this regard. The first such order was issued in 2003 and has been reviewed from time to time, taking into account the existing conditions in the sector. The last such order was issued in 2015 with a promise to review the same in 2017-18. This proposed consultation exercise is part of such a review. It has been argued that considering the review is due in 2017-18 and the consultation process may take up to 9 months, one can’t see how the proposed exercise is premature or contrary to the earlier promised schedule and therefore favours some new operator.

Objections have also been raised on the contents of the consultation paper. The paper traces the history of IUC determination starting with the use of the fully-allocated-costs model for determining the IUC rate. This method is based on historical costs and the use of a top-down model. It then traces the development of more modern models based on forward-looking costs. That leads to the Long Term Incremental cost (LRIC) models which have been used in the more recent reviews of the IUC. The paper also goes on to discuss the Bill And Keep (BAK) model wherein no inter-operator settlement is required as it implies that termination charge is set to zero.

Each model gives a different result and the choice of a specific model is usually based on arguments and logic. However, in line with total transparency in determining the IUC, all models have to be discussed during the consultation process. This is precisely what Trai has attempted through its consultation paper.

While the consultation process will bring out the arguments in favour and against each of the models, it is interesting to see the impact under the evolving scenario in the telecom sector. The present termination charge is 14 paisa based on the LRIC+ model; it has different implications for different operators. A well-established old operator has a very large number of subscribers and is characterised by more incoming calls than outgoing calls. Incoming calls earn termination charges while outgoing calls imply a pay-out. More incoming calls than outgoing imply that after adjustments, the operator receives a net payment from other operators. On the other hand, a new operator has more outgoing calls than incoming and thus ends up paying termination charges to other operators. In quantitative terms, with the present termination charges, an established old operator gets as much as R100 crore per month as termination charges. The stakes are therefore high. In conclusion, any new operator will end up paying substantial monies as termination charges till its incoming calls reach levels matching the number of outgoing calls.

The above scenario is valid so long as all operators use the same GSM technology, viz., 2G or 3G. Consider now what happens if a new operator with 4G technology (LTE-based) enters the market. In 4G, voice is carried as data using VoLTE. While precise calculations of termination charge when voice travels as data has not been carried out, back of the envelop calculations and international literature show that it may be in the range 2 to 3 paisa. Under this condition, such an operator will receive a subsidy of 11 or 12 paisa for each call terminated in its network while no such subsidy is available to GSM operators. In the short-term, a new 4G operator may have a net outgo in termination charges but as his incoming calls increase, he will get a fair amount of net subsidy.

Ideally, if calls terminating in 4G and 2 or 3G could be separately and conveniently identified, separate termination charges could be considered. This is however, not feasible. Under such a condition, the possibility of using BAK deserves consideration.

With this background, Trai is fully justified in bringing out a consultation paper considering all alternatives. It will be the stage of resulting regulation after the consultation process that challenges can be raised in courts by aggrieved parties.

Thus, the raising of charges against Trai in the media is, at best, reflective of immature and hasty thinking.

The author is former member, Trai

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