What’s the IUC standoff between RJio and the incumbent Telcos?

By Dr T H Chowdary

The entry of Reliance Jio into telecom service business has led to falling revenues and growing losses for the incumbent telcos. The incumbents have been asking for increase in interconnection usage charges (IUC) while Reliance Jio has been pitching for its abolition. A little understanding of the IUC would be useful.

When telephone traffic is exchanged between two countries, there are three costs - costs in the originating and terminating countries domestic networks and the international link. These are incurred by the two countries separately and jointly for the interconnecting international system. By mutual discussion, the telcos in the two countries arrive at what is called Telephone Accounting Rate (TAR) per minute. If country A sends 1,000 minutes of traffic to country B, and B also sends to A the same minutes of traffic, then as the traffic is balanced, there is no payment from A to B or B to A.

On the other hand, if A sends to B 1,000 minutes of traffic but B sends 400 minutes of traffic to A, A will have to pay to B for 1,000 minus 400 i.e., 600 minutes of traffic at half the TAR. The TAR may not be related to what companies A and B collect from their subscribers. This collection rate is priced by the companies A&B independently. The collection rates affect the number of calls and their duration i.e., the amounts of traffic exchanged between A&B.

The traffic coming to India form the USA used to be three-to-four times the traffic from India to the USA. So, India used to get huge amount of US dollars. This is just like trade deficit / excess between two countries. India’s international call rates were kept high due to ideological reasons - only business men need to call; so let them pay.

The situation between Reliance Jio and other telephone companies is like what it was for the USA-India traffic some time ago. Since, the Reliance Jio subscriber’s telephone calls are free, there is more voice traffic from the RJio to the other telephone networks. If the interconnection or terminating charge is high other telecom companies will be the net receivers from the IUC. That is why RJio is arguing for reduction or abolition of the IUC while the other telecom companies are asking for a hike. From the customers point of view RJio’s proposal is welcome. From other companies’ point of view, it is loss to them.

To terminate the torrential voice traffic coming from RJio, the incumbents have to augment as well as upgrade their networks and to reduce call drops they have to put more cell towers. These are huge capital-requiring tasks. The incumbents are already groaning under heavy debt of over Rs 5 lakh crore. Banks are tending to classify them as “stressed” assets not yet non-performing. Incumbent telcos are urging the DOT to postpone collection of spectrum payments and reduction of spectrum usage charges. They are obviously in distress.

RJio is a subsidiary of Reliance Industries, which is making huge profits. It has recently issued bonus shares in the ratio of 1:1 (I am a beneficiary). RJio is making losses; it can continue to lose; the parent can cover them; with indiscernible diminution in profits.

The disruptive competition with unlimited free voice calls to its subscribers (I am one) does not appear to be fair, a matter that for as yet unknown reasons, has not attracted the Competition Commission’s attention. The reduction in IUC in the present state of competition appears unfair, if not punitive the TRAI’s order reducing IUC is not understandable. The incumbent telcos had done a great job. The imposts on the telcos are the highest in the world. Yet they put a telephone in the poorest man’s hand. They deserve a better deal.

Government is greedy. It has sold radio spectrum to the telcos. They purchased it and are paying for it. Why should the government charge / levy a spectrum usage charge. You bought a house and paid its cost. But the seller demands that you must pay rent for using the house! Is this fair? The government having sold the spectrum and the telcos having paid and bought it, levying usage charges is just like the seller of the house asking the purchaser of the house to pay rent for using it!

Government has been levying 5% of the adjusted gross revenues of telcos as Universal Service Fund (USF). It has collected about Rs 80,000 crore so far. About half of it is used for “subsidising” rural telephony, mostly to the government owned BSNL. With so much in the government kitty and some of it being used for the optical broadband fibre connections to 2,50,000 Gram Panchayats, the rest ought to be used for promoting research and production of indigenously designed and produced telecom network equipment and user devices.

The tragic fact of demonopolisation and competition is the near death of indigenously developed and produced telecom equipments. We are importing billions of dollars worth of Chinese telecom equipment for all the telecom networks.

This contributes heavily to the $50 billion per year trade deficit with China. The Chinese telecom companies Huawei and ZTE were born later than India’s ITI . The ITI is now surviving on “reservation” orders. The C-DOT, which was set up in a mission mode to design and productionise electronic switches, is of no consequence to our networks. It is just a peripheral player. The neglect of C-DOT and research in India is an unpardonable crime committed by successive governments, especially those men in and at the head of the telecom department.

Is it not a shame that while the ISRO could send more than 100 satellites, some of them for foreign countries, with one rocket, India cannot develop and produce the equipment required by the telcos and IT companies?

I wonder how the Prime Minister and the DOT and BJP and the NDA are not taking this matter seriously – R&D, creation of IP and productionisation of indigenously designed and developed equipment for our telecom and IT networks. The Chinese companies Huawei and ZTE have R&D establishments in India, employing Indian talent to develop intellectual property owned by them and using it for sale of products to India. Could not the state-funded C-DOT be nourished to pre-empt the foreign companies, on Indian soil, using Indian talent?

(Dr T H Chowdary, a TCS Fellow, is former CMD of VSNL and has also served as Information Technology Advisor of Government of Andhra Pradesh. He is currently Director at the Center for Telecom Management & Studies (CTMS). He founded the CTMS in 1989, as a not-for-profit-society to wage the intellectual campaign for demonopolisation of and competition in Indian telecoms. He received Padma Shri in 2017)