With the rupee sliding due to a precarious current account deficit (CAD), India’s leading mobile operators have come up with what they believe is a solution to both their problems as well as the CAD: Hike the termination rates on incoming calls from overseas.
Given that India gets around 68 billion incoming minutes, hiking the termination charges ?the amounts paid by the overseas operators from whose networks the calls are being made ? from 40 paise right now to, say, Rs 2, will bring in around $2 billion extra in revenues for the operators and precious forex for the country.
Operators have approached the Telecom Regulatory Authority of India (Trai)?which last revised the rate in 2009 ?seeking an increase. The only problem is that there is a case pending in the Supreme Court challenging the Trai’s right to determine Interconnect Usage Charges (IUC), the charges levied between various operators for all manner of calls including international ones ? termination charges are part of the IUC. While hearings in the case have concluded, a judgment is still awaited. Once the verdict is given, the Trai can take a decision, assuming the SC rules in its favour. The idea, however, is not to raise rates across the board since, in most OECD markets, termination rates are very low ?it is a mere 59 paise for the US and 89 paise for the UK. In the case of Oman, however, the rate is a whopping Rs 12.39 (see table).
If mobile termination rates for overseas calls are raised for the middle east, the likelihood of reciprocity is minimal since these countries charge high rates even today. A very sharp hike in rates could also lead to more internet-based calls which Trai will need to keep in mind.Almost all operators FE spoke to highlighted the need for increasing termination rates but since the final decision vests with the Trai, they declined to speak on record. However, they said that they were in discussions with the Trai for the same.
While there has been significant increase in mobile termination rates (MTRs) in most countries over the last five years (see table), in India it has been constant at Rs 0.40 per minute levels (0.68 cents/min) and are amongst the lowest in the world. This has created a pricing arbitrage, leading to an increasing imbalance in incoming calls versus outgoing calls. For every outgoing call from India, the country is receiving 15 incoming international calls (this was 1:5 in 2007-08). Currently, the international incoming minutes into India is estimated to be 68 billion minutes per annum, compared with outgoing of 4.5 billion minutes per annum.
On an average, the blended MTR paid by Indian operators is estimated at around Rs 3.50/min for outgoing international calls, in contrast to the 40 p/min MTR they receive on international incoming calls. Consequently, Indian subscribers have to pay a higher rate for international calling. This has also created a pricing arbitrage of Rs 3.10 /min in favour of international operators, thereby leading to the volume imbalance.