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Smart move by Reliance Jio, others should have emulated it

The Financial Express
Mukesh Ambani, chairman, RIL

Asking its customers to pay the six-paise per minute interconnect usage charge (IUC) for calls they make to other networks like Bharti Airtel or Vodafone Idea, is a win-win for RJio. If the customers are upset about paying 18 paise for every three-minute call they make and can pressure the telecom regulator (Trai) to scrap the IUC, RJio benefits as its customers make around twice as many calls as they receive from other networks. Since its launch in September 2016, RJio has paid other mobile phone firms Rs 13,500 crore as IUC charges, but has not asked subscribers to pay for this since its USP was the free calls as long as customers paid it for using data; under Trai rules, each time a call is made to another network, an IUC charge must be paid. By asking subscribers to pay the IUC, RJio is painting Bharti Airtel and Vodafone Idea as the villains; interestingly, when the IUC was a higher 14 paise per minute at the time RJio began its services, it never charged customers for this.

If, on the other hand, Trai doesn't scrap the IUC-as per its original plan, this was to be done by January 1, 2020-RJio will get a 10-12% increase over what the subscribers pay it right now, and that will help improve its profitability considerably. And, since RJio has said it will compensate its customers for this IUC-charge by giving them extra data on their current plans, this ensures its customer-friendly image doesn't suffer; if RJio's network is relatively uncongested, the costs of giving customers more data won't cost that much extra either.

While it is not clear whether Trai will scrap the IUC, chances are it won't since most telcos are in very poor financial shape. Indeed, till the last quarter, industry revenues have been falling for several years, and this has put at risk not just around Rs 2.5 lakh crore owed to banks but also the Rs 3 lakh crore or so of spectrum dues to the government-telcos paid an upfront fees, and most auctions allowed them to pay the balance in equal installments after an initial moratorium. Indeed, there have been no auctions for the last three years due to industry finances being a mess.

What is surprising is that none of the legacy telcos have come up with an equally smart strategy as RJio's. Around 400 million telecom subscribers are still on the old 2G networks and while a large number of them don't pay much, telcos still made some money via the IUC since, whenever these customers got a call, an IUC was paid by the calling party. So, when Trai cut the IUC from 14 paise per minute to six paise in 2017, the older telcos should have started cutting off the lower-paying subscribers and blamed the Trai for this; they have started doing this now, but without blaming Trai. While Trai justified the IUC-cut by using the operating costs of IP-based networks, like those of RJio, which are much lower than those of legacy networks, it never thought of how poor subscribers with basic 2G phones would move to 4G networks that both required more expensive phones-RJio heavily subsidised the cost of its feature phone to make it more affordable-and higher billing plans. While it is understandable that telcos wouldn't want to take on the regulator so openly, certainly the government needed to ask the regulator to justify the cut since it was always obvious it would result in, eventually, poorer customers getting shut off from telecom networks; given 4G customers pay 3-4 times what 2G ones do, even the older telcos are quite happy to move to 4G networks.