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.
