Trai likely to stick to 6 paise/minute IUC rate for two more years

The Telecom Regulatory Authority of India (Trai) is likely to continue with the current termination charge of 6 paise per minute for two more years, beginning January 2020. Highly placed sources told FE that the thinking within the regulatory body was that the financially-stressed telecom sector cannot afford another disruption at this point, and therefore, the termination rate should not be tinkered with.

Though Trai is an autonomous statutory institution and matters related to tariffs are totally within its jurisdiction, sources said the top echelons of the government are on the same page with the regulator on the matter. In fact, talks in the government regarding some sort of a floor price for tariffs has been going on for quite some time but the matter has been left to Trai’s discretion.

Sources said Trai is unlikely to come out with a separate consultation paper on any floor price for tariffs, but by keeping the current termination rate intact, may in a way signal that this is a kind of floor price.

As Reliance Jio has already announced that it would start charging at 6 paise per minute for calls made from its network to rival networks, once Trai finally decides on retaining the current termination rate, it is likely that Bharti Airtel and Vodafone Idea also do something similar – bringing the much-needed hike in tariffs which would help the bottom line of all the operators.

In the last few months Vodafone Idea chairman Kumar Mangalam Birla, Vodafone Group global CEO Nicholas Read and Bharti Enterprises chairman Sunil Bharti Mittal have separately held meetings with either telecom minister Ravi Shankar Prasad or the telecom secretary, urging some action on the tariff front. The government has at all such occasions maintained that it has no jurisdiction over tariffs and it is solely the prerogative of Trai.

On his part, Prasad has written to the finance minister urging for some sort of relief for the telecom operators by reducing the universal service obligation (USO) levy to 3% of their adjusted gross revenue from the current 5%. This would automatically bring down the revenue share licence fee to 6% of the AGR from the current 8%. The department of telecommunications (DoT) is reportedly working on some other relief measures such as either giving a two-year moratorium on payment of deferred spectrum installment or extending the payment period from the current 16 years by another two years.

Sources said Trai tinkering with the termination rate at a time when the government is trying to work on some relief measures would send out contradictory signals and serve no purpose.

According to a UBS report, if all the three operators start charging 6 paisa per minute for all outgoing calls, the annual sector revenue and Ebitda can increase by Rs 15,000 crore and Rs 13,000 crore (based on FY20 Q1 traffic patterns) respectively. The brokerage said the positive Ebitda impact could be 13-15% for Bharti, 55-60% for Vodafone Idea and 32-36% for Jio on the basis of this calculation. “It is important to note that Bharti and Vodafone Idea still generate more than 50% of their traffic from customers on 2G and voice plans and they may not increase prices for these customers. This could somewhat reduce the positive Ebitda impact on Bharti and Vodafone Idea in our view,” UBS noted.

Termination charge is paid to the operator on whose network the call terminates by the originating network.

Trai had last reduced it in September 2017 by a massive 57% to 6 paise per minute. Prior to it the rate was 14 paise per minute. At the time Trai had proposed operators moving to a regime of zero rate from January 2020.

In its consultation paper issued on September 18, the regulator said, “While revisiting the issue, based on the actual developments during the last two years, it needs to be decided as to whether the date 1.1.2020, earlier fixed for implementing BAK regime (zero termination charge), through IUC Regulations 2017, still holds or it requires reconsideration.”

According to figures shared by Trai, Bharti’s incoming calls (from other networks) stand at 54.70% compared with 45.30% of outgoing calls. Jio’s incoming calls stand at 35.75% and outgoing at 64.25%, while for Vodafone Idea incoming calls are 59.30% and outgoing at 40.70%.