In a decision that has disappointed incumbent telcos, TRAI has slashed the Interconnect Usage Charge (IUC) from 14 paise/min. to 6 paise/min. While TRAI says it will benefit the consumers as it will reduce their bills, the decision seems to have taken a toll on the incumbents.
Interconnect Usage Charge or IUC is paid by the company whose subscriber initiates a call to the company whose subscriber attends it. In simple words, if you are calling from an Airtel number to a Vodafone number, Airtel is bound to pay IUC to Vodafone as your services connect.
Why is IUC paid?
Interconnection Usage Charge or IUC is paid by the call initiating network to the network where the call is made. It is so because when you call from one operator to another, the other operator needs to have investment and infrastructure to carry your call to its consumer. IUC makes sure that there is always proper infrastructure and investment so call quality is not compromised.
So far, telcos were paying 14 paise/minute IUC which has now been reduced to 6 paise/minute. Not only this, the new rates will come into effect from October 1 this year, and by January 2020, IUC will be completely removed.
Who will benefit from IUC removal?
According to TRAI, IUC removal will “encourage flat rate billing and time differentiated charges, both of which will improve capacity utilization and will be in the interest of consumers”. While this seems to be right, there is one telco indirectly benefitting off it.
Reliance Jio, the new telecom to enter the market was the only one supporting a reduction in IUC, while all other telcos were pursuing a further increase to it. TRAI’s decision has somewhat benefitted Reliance Jio in its expansion plans for the future.
After the announcement of new IUC rates and the Telecom Regulator’s effort to move the sector to a ‘Bill-and-Keep Regime’, older telecom operators like Bharti Airtel and Vodafone have opposed the decision openly, stating it will unilaterally benefit the new entrant i.e. Reliance Jio.
Bharti Airtel has issued an official statement regarding this,
“We are extremely disappointed with the latest regulation on the IUC, especially at a time when the industry is facing severe financial stress. The suggested IUC rate, which has been arrived at in a completely non-transparent fashion, benefits only one operator which enjoys a huge traffic asymmetry in its favour.”
Vodafone, on the other hand, issued a statement which refers to the impact this decision will have on the digitization in rural India. The statement says,
“This is yet another retrograde regulatory measure that will significantly benefit the new entrant alone while adversely affecting the rest of the industry as a whole. Unless mitigated, this decision will have serious consequences for investment in rural coverage, undermining the Government’s vision of Digital India.”
In a statement to ET, RS Sharma, Chairman of TRAI defended the decision saying,
“Trai has been extremely transparent. There are no assumptions in the decision. If some entity or stakeholder is adversely impacted, financially, he’s justified in getting disappointed. It’s a free country, they can move court”