Telecom interconnect charges: Economic principles, not popular voice should be deciding factor

By: |
July 26, 2017 4:43 AM

This important regulation should be guided by economic principles and not through a popular voice vote

Since interconnect plus usage charge translates into IUC it is clear that when we discuss the issue of IUC we are acknowledging that interconnection between various telecom operators is mandatory.

Trai recently conclude the consultation on the issue of Interconnection Usage Charge (IUC) where it had raised some questions for consultation. Should there be an IUC? Since interconnect plus usage charge translates into IUC it is clear that when we discuss the issue of IUC we are acknowledging that interconnection between various telecom operators is mandatory. This, indeed, is the case in our licensing and regulatory regime. Interconnection and IUC, may be two different things but are complementary and in the absence of one the other may not be workable. That there is a charge involved in interconnecting different networks is a fact that cannot be ignored. If this charge is not defined and mandated, differences can arise with operators not willing to interconnect. Of course, this charge cannot be zero and there has to be a cost-based IUC charge.

How should IUC be calculated?
Having settled the issue there is a need to define IUC. How can this charge be calculated. Undoubtedly, the regulator has the discretion to adopt any of the methods to calculate this charge. For example, it may be FAC, LRIC, PURE, LRIC and so on. However, its discretion is not unlimited or unrestricted. The discretion is to be exercised judiciously and in a non-discriminatory manner based on the circumstances and current market situation. The regulator is an expert body, and hence must consider international practices. The decision is amenable to judicial scrutiny as was done in the case of Trai when the TDSAT intervened in the IUC regulation and observed that the calculations made by the authority were not based on sound rational. The order is before the Supreme court and we are yet to hear the final verdict.

In any case since the charge is meant for compensating the cost of the terminating network, its calculation should also be based on the cost of network of terminating operator. Each operator has a right to decide the technology he wishes to adopt as the licensing regime is technology neutral. One operator cannot decide the equipment to be used and technology to be adopted by the other operator. This will also depend on the choice of operator as to which service, based on what technology he provides to the customer.

Even DOT while auctioning different bands of spectrum has left the choice of technology usage to the relevant operator. The operator is, thus, free to decide to use that spectrum for 2G,3G or 4G. Therefore, the cost of the termination network is the guide for deciding the IUC and not the network of the originating operator. Settlement of IUC charge should not be confused with calculation The issue of deciding on the regime the operators need to adopt for settlement of this charge should not be confused with the policy adopted for calculation of IUC.

While the methodology to be followed for calculation, whether cost-based or cost-plus and so on, is a matter of regulatory policy, bill and keep or CPP are merely settlement mechanisms, and the two should not be confused. Once the IUC charge is levied and collected from the customer, the concerned operator may decide to follow bill and keep. However, this regime can be implemented only if this is acceptable to the interconnected operator and cannot be thrust upon the other operator. If the traffic pattern between the two operators is not symmetrical, imposing this on the terminating operator will mean that the terminating operator is subsidising the originating operator.

As per my observations, there is not even a single regime where the IUC charge in a CPP regime is introduced, but the condition imposed is bill and keep. In case it is implemented this will allow enrichment of calling party operator at the cost of terminating operator. The cost of termination will have to be borne by the customers of terminating operator. This is totally unsustainable scenario. The rule is that when the IUC charge is levied and the CPP regime is introduced the terminating operator can be forced to interconnect only when he is allowed to recover his costs. Of course, these costs have to be judicious, rational and based on local market conditions but within the framework of international regulatory scenarios. This option will create a healthy environment. The second option is receiving party pays regime. In this regime, the terminating operator will collect this charge from their customer. This will hugely affect the calling pattern and is it an option worth considering.

It is expected that Trai will consider the following facts while coming out with regulations:
• There should be a defined charge based on rational, sound economic principle and this should not be discriminatory and arbitrary.
• This charge will be based on the network cost of the operator where the call terminates
• The planning of the network is left to each operator and cannot be imposed by one operator
• IUC should be a minimum charge in deciding underlying cost of providing the service, otherwise there is no sanctity to this calculation.
• It must be paid to the party where it belongs.
This important regulation should be guided by economic principles and not through a popular voice vote because the decision can make or break this important sector.

Narender Gupta
Founder & CEO, Tathya Consulting
Views are personal

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