Airtel, Vodafone and Idea seek higher IUC, Jio wants it scrapped

KOLKATA: As top telecom companies clamour for a cut in licence fee, spectrum usage charge (SUC) and Universal Service Obligation Fund levy to ease financial stress in the telecom sector, the issue of interconnect charges (IUC) has once again emerged as a potential flashpoint between top telcos.

While Bharti Airtel, Vodafone India and Idea Cellular are asking for IUC to be raised, new entrant Reliance Jio Infocomm is asking it to be scrapped. The IUC is a fee that a telco pays another player on whose network a call terminates, and is at 14 paise a minute, reckoned to be nearly half of an incumbent carrier’s cost of a call.

Jio, owned by Mukesh Ambani, wants it abolished as it has banked on free offers to attract its 100 million-plus customers since its entry last September. During last week’s meeting between the sector regulator and telecom carriers, Jio is believed to have reaffirmed its position on IUC by calling it a subsidy for incumbent carriers.


Scrapping of interconnect charges would directly benefit Jio as it would reduce its IUC payout, given that it has more outgoing calls made to subscribers of larger operators such as Airtel, Vodafone India or Idea.

Sandip Das, senior adviser at Analysys Mason, isn’t convinced about the demand for higher interconnect charges, saying it smacks of a situation where “one is seemingly trying to counter a possible market share loss by pushing for a hike in a statutory levy, which if cleared, would ultimately hurt the consumer”.

But Das said IUC charges cannot immediately be abolished as long as majority of telecom networks are of the circuit switch (CS) variety. “Something like IUC would only become irrelevant once a majority of the mobile networks have become IP-based and migrated to VoLTE and VoIP, which, isn’t the case today.”

The stakes are huge as the top incumbents have also urged Trai to create a floor price for voice and data services, another move opposed by Jio, which has said it won’t charge for voice services for life. If the incumbents’ demand is cleared, it would signal an end to free services for mobile phone users.

Experts backing the call for higher IUC cite higher costs involved in terminating 4G voice calls on traditional circuitswitch (CS) networks and also delivering them on ordinary feature phones owned by majority of the country’s population.

“A call originating on a 4G data network cannot be handed over to a circuit-switch network in its original native form, and requires to be translated to a voice-readable format, which obviously entails a cost for the terminating network for which it must be compensated for carrying the call,” said Rajan Mathews, director general of the Cellular Operators Association of India (COAI).

Such conversion of 4G data calls to a readable voice format, he said, is also necessary at the terminating network operator’s end for delivering such 4G calls to plain vanilla feature phones owned by nearly 70% of the Indian population.

But another telecom industry veteran, who did not wish to be named, said incumbents cannot continue to base their (termination) costs on CS technology, especially when the world is rapidly moving towards VoIP and VoLTE.

The genesis of IUC goes back to January 2003, when the Calling Party Pays (CPP) rule was introduced in India. Since the CPP rule bars terminating operators from charging customers for incoming calls, the IUC is the only way to recover cost of incoming calls.

Bharti Airtel, Vodafone India, Idea, Jio and RCom did not respond to individual emailed queries from ET.