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Rates Revised: TRAI issues amendments to IUC regulations

April 06, 2015
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Interconnection is a critical component of present-day communications. It includes the commercial and technical arrangements under which service providers connect their equipment, networks and services, in order to enable their customers to have access to services and networks of other operators. An interconnection arrangement thus includes an interconnection usage charge (IUC), which can be in the form of termination charges, carrier charges, transit charges or international settlement charges.

The Telecom Regulatory Authority of India (TRAI) recently revised the IUC rates after a span of around five years since the last revision. This latest revision has been published as the IUC (Eleventh and Twelfth Amendments) Regulations, 2015. To arrive at these regulations, TRAI had issued a consultation paper on November 19, 2014, seeking the views of key industry stakeholders regarding the various aspects of IUC rates. The consultation process broadly dealt with various issues pertaining to the IUC regime in India and the necessary revisions to it. These include the calculation of the mobile termination charge (MTC) and fixed termination charge (FTC), which can be undertaken through a cost-oriented or a bill-and-keep (BAK) arrangement. Connected to this issue is the question of the appropriate methodology for prescribing MTC and FTC in case a cost-oriented or cost-based approach is chosen. Apart from this, the consultation process dealt with the question of the most appropriate level of international termination charges (ITC). Lastly, it looked at the determination of domestic carriage charges and revised the associated ceiling rates.

tele.net takes stock of the key aspects of TRAI’s eleventh and twelfth amendments to the IUC regulations...

Cost-oriented versus BAK regime

Responding to TRAI’s consultation paper, key industry stakeholders expressed the view that a cost-oriented approach should be adopted in calculating the termination charges. They argued that in India, where the calling-party-pays (CPP) regime has been adopted for retail tariffs, market players can be compensated for their work done in terminating off-net incoming calls only through a cost-oriented termination charge regime. However, a few telecom service providers (TSPs) favoured the BAK arrangement for calculating termination charges. They argued that although network usage has increased significantly and network costs have reduced substantially, the benefits have not been reflected in retail tariffs because the termination charge has remained high. They contended that a BAK regime would prevent incumbent TSPs from recovering their costs of operations from their competitors and would thereby facilitate greater competition in the sector.

There is a lack of international experience in this regard, as not many countries have adopted the BAK arrangement, including countries with mature telecom networks. In countries where the BAK arrangement has been adopted, it has been through voluntary action of the TSPs themselves. Moreover, countries that have adopted the BAK regime follow the mobile-party-pays system, instead of the CPP regime. The regulator has, therefore, concluded that in view of the fact that the CPP regime is the prevailing regime in India since 2003 and a significant asym-metry in traffic flows between the TSPs still exists, the case for implementing the BAK regime remains weak given the current telecom market conditions.

Since a large part of rural India is yet to be connected, building and enhancing telecom infrastructure in these regions continues to be a policy and regulatory priority. Therefore, TRAI has mandated that the MTC should be fixed at a level that compensates TSPs adequately for their role in terminating off-net incoming calls. The absence of a cost-oriented MTC would discourage TSPs from investing in rural areas and maintaining optimum network quality standards. Accordingly, TRAI has decided to continue to prescribe a cost-oriented MTC in the country. Under this cost model, MTC has been calculated as the sum of the cost per minute from the long-run incremental cost model, marked up for common costs and spectrum cost per minute. Following these calculations, the MTC has been fixed at Re 0.14 per minute.

FTC and a special case of MTC

The wireline segment in the country has stagnated owing to the increasing uptake of wireless services. Further, the capability to provide high speed data service is not enough to make wireline networks a profitable alternative to wireless networks. Thus, it is a challenge to position wireline access services as an affordable solution for both voice telephony and broadband services. In this context, TRAI has examined the suitability of an IUC regime, in which MTC for calls originating from wireline networks and terminating on wireless networks and FTC is set at zero.

TRAI is of the view that in case the MTC is set to zero for wireline-to-wireless calls, wireline access providers would be able to provide innovative tariff packages (such as flat rental plans with unlimited or many outgoing calls), which is likely to stimulate usage and check the churn-out trend of wireline connections. Similarly, if FTC for calls originating from wireless networks and terminating on wireline networks is set to zero, it would encourage wireless access providers to offer cheaper tariffs for wireless-to-wireline calls. This would, in turn, facilitate the adoption of wireline phones for receiving calls. It would also help in reviving the large wireline networks run by state-owned companies Bharat Sanchar Nigam Limited and Mahanagar Telephone Nigam Limited.

These steps would together help make wireline telephony a viable venture for market players, as well as an affordable voice and data solution for consumers. Therefore, TRAI has decided to prescribe zero FTC and MTC for wireline-to-wireless calls, which can help in promoting investments in wireline networks, as well as their adoption.

International carriage charges

International carriage charges have been under forbearance since the inception of the IUC regime. TRAI, in its regulations, has discussed the possibility of fixing a cost-based floor or ceiling for international carriage charges. The regulator examined the cost structure of various international long distance operators (ILDOs) through their accounting separation reports. It was noted that the cost of international carriage varies from Re 0.02 per minute to Re 0.72 per minute, and the per-minute net revenue realisation amongst various ILDOs varies from Re 0.03 per minute to Re 0.65 per minute. These values are determined by the way revenues are booked between an Indian ILDO and its foreign affiliates. In view of the complex cost structure, the varying methods of cost booking and revenue accrual and net revenue realisation of Indian ILDOs, TRAI has concluded that it is not possible to fix a cost-based floor or ceiling for international carriage charges.

International termination charges

TRAI is of the opinion that the ITC should be fixed at a level that meets three objectives – to encourage TSPs to reduce tariffs on outgoing international calls and to prevent any revenue losses arising from pass-through and calling card regulation, to prevent the diversion of traffic to over-the-top players such as Skype and Viber or create an arbitrage opportunity for the grey market and to neutralise the effect of the foreign exchange rate variation.

As per the regulator’s analysis, if the ITC were to completely neutralise the variation in the rupee vis-à-vis the US dollar, the ITC would need to be inclusive only of the foreign exchange variation. Therefore, TRAI has decided that the termination charge for international calls will be           Re 0.53 per minute. The regulator has further stated that it would monitor foreign exchange rate variations, the implementation of the International Calling Card Service Regulations (Access Charges), 2014, and the trends and patterns of international outgoing and incoming calls. In case there are distortions in the ILD market, TRAI would review the termination charges for international calls.

Domestic carriage charges

Access licensees in India offer services within their licensed service area (LSA). For inter-LSA service, calls have to be routed through a national long distance operator (NLDO). The charges paid by a TSP to the NLDO to cover the cost of carrying inter-LSA calls are called carriage charges. Earlier, the ceiling for these carriage charges was fixed at Re 0.65 per minute as part of TRAI’s IUC regulations of 2006. In its latest regulation, TRAI has revised the ceiling charge to Re 0.35 per minute. This value has been determined after adding a mark-up of around 10 per cent on the carriage costs, and taking into consideration the competitive market NLDOs operate in for acquiring businesses.

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