The Telecom Regulatory Authority of India (TRAI) recently made three landmark changes to telecom traffic and interconnection regulations. We have exclusive access to few important technical information. With the rapid growth in Telecom segment over the last one year, it is vital to have a glimpse at the latest amendments and the possible implications.
As part of the new telecom traffic and interconnection rules, new players will be able to create cut-price plans when compared to competitors. Moreover, existing telecom service providers won’t be able to slash prices to match new entrants. Hence, the customers of the existing telecom providers cannot take advantage of low tariff rates.
The new providers would have to pay existing telcos IUC charges, which has been slashed by over 50% leaving existing telcos empty-handed. The new rules and regulation will be a big bonus for new companies since they will benefit from these laws as their spends reduce. The prices will surely create an unstable environment in the tariff pricing space in the next one year. Finally, TRAI is forcing existing providers to migrate to next-generation networks by canceling IUC by 2020.
The providers would be required to invest more capital not only for network expansion but also to upgrade while absorbing a loss of IUC revenue. You can expect call quality to worsen before they invest more capital and take on more debt. In this article, we will examine the three new changes to the telecom traffic and interconnection regulations that have created a storm in the Telecom segment.
Ruling 1: Redefinition of criteria in the Significant Market Power (SMP) and Predatory Pricing
The previous criteria of SMP included network volumes and capacity as the measuring parameters, which have been changed to gross revenues and subscriber market share in the current market scenario. The incumbent telcos will not be allowed to reduce prices to match up to a new entrant, to stop current customers from deflecting. The new entrant or smaller telcos are allowed to introduce new attractive price offers every other month.
The ruling supports telcos having less than 30% share of revenues or subscribers in a given market, and in most circles in India, either Airtel or Vodafone-Idea have 30% share of the same. The basic idea of the new rule is to bleed customers or help them deflect until the new entrant or smaller player has its equivalent share of either subscribers or revenues.
Ruling 2: Reduction of Interconnect Usage Charges (IUC) from 14p per minute to 6p per minute
IUC is the fee paid by one telecom operator to another to complete a call from its network to the other network. The incumbent telcos have been in the market for a longer duration and have an established strength and customer base. For the new entrant to use their strength would now be billed at a much cheaper rate with IUC being reduced by over 50%. This helps the new entrant but reduces the effectivity of established telcos by slashing their earnings every time the newcomer uses their network.
Ruling 3: IUC elimination from January 2020
According to TRAI, the future nextgen networks will be data-driven and based on IP. Voice calls are expected to travel as data packets and there will be no fees required to complete calls or carry data packets from one telco to the other. Established telcos are required to invest in network upgrade to provide next-generation networks for customers, despite the loss of IUC revenue. However, the new entrants are already on the next generation network, which saves them money on both the upgrade as well as the IUC bills.
Impact of the Ruling
Incumbent customers will be locked with higher prices on their services availed, whereas customers of the new entrant or smaller telcos will enjoy variable benefits below the average costs. With the lower tariffs for the newcomer comes the hit in quality of calls for incumbent customers in the rural areas. Implementation of these ruling would take away the flexibility of incumbent telcos to protect their customers and offer them better benefits. These rulings also mean that the call quality will worsen before the telcos invest in their nextgen networks.
However, the implementation of next-gen networks in the future will see uniform tariffs and data-centered pricing. It will also ensure that customers will get superior and qualitative experience.
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