What is the issue?
- Telecom Regulatory Authority of India (TRAI) has decided to slash International Termination Charge (ITC) by 43%.
- This move has serious implication for the telecom sector revenues and other macro-economic calculations of the government.
What does “Call Termination Charge” mean?
- Termination rates are the charges the call receiver’s telecom operator charges the dialler’s telecom operator for letting the call go through.
- This cost becomes the operating cost for the dialler’s network and is charged from the dialler as part of the call rates.
- Most telecom jurisdictions have regulated this rate by law and India’s TRAI too has done the same.
- Currently, the domestic call termination charges is 6 paise/min and the international rates is 53 paise/min.
- As per the recent TRAI directive, the international rates will become 30 paise/min from Feb 2018.
- Notably, domestic rates were cut last year by more than half, which was seen as a move that advantaged new comers over established incumbents.
Why is TRAI’s logic flawed?
- Security Aspect - TRAI’s has stated that this cut is to eliminate grey market calls that pose a national security threat.
- But this argument is weak as the rate cut comes at a time when voice calls are increasingly being made via internet based applications.
- As these apps also come embedded with similar “security” threats, merely cutting rates for calls might not address the security issue.
- Rate Contradiction – Cheaper international incoming calls are indeed consumer-friendly, which is the focus of TRAI’s mandate.
- But India’s current rate of 53 paise/min already fares favourably with Rs 1.01 of US, Rs 15.44 for Oman and Rs 8.36 for the UAE.
- Notably, the low ITC in India has resulted in a skewed pattern of call traffic, with incoming to outgoing calls in the ratio of about 20:1.
- Given this, there is little reason to suppose that incoming traffic is likely to surge as a result of this cut or that consumers will enjoy increased ease.
What is the macro impact?
- The telecom sector is stressed with an accumulated debt of Rs.4.7 trillion, which is partly due to the reckless competition from the deep pocketed “Jio”.
- Hence, Telcos have expectedly protested strongly against ITC reduction as it might affect their revenues drastically.
- As the estimated loss is around Rs.20 billion for this year, it will be a significant portion of the industry’s annual earnings of around Rs 2.4 trillion.
- From the government’s perspective, this cut is likely to impinge on revenues - in terms of the GST, licence fees and foreign exchange earnings.
- Significantly, the government is currently struggling to curtail the burgeoning fiscal deficit, for which limits have been breached within 8 months.
- All these factors call for a serious rethink and TRAI would do good to revoke the rate cut.
Source: Business Standard
