Wednesday, August 24, 2016

Termination Charges Now a Key Business Issue for India Mobile Operators

Arcane network interconnection rules are anything but irrelevant for service providers (mobile or fixed) whose revenues are directly affected by such rules. So it is that a proposal to change interconnection fees for service providers terminating calls has become a big  business issue for India’s mobile operators.

Now, an interconnection charge for terminating a mobile call generates 14 paise about two-tenths of a U.S. cent) per minute (some call this “calling party pays”).

Conversely, no termination charges are levied on calls made from one landline to another or from a smartphone to a landline number, using the “bill-and-keep” method for interconnection.

But the Telecommunications Regulatory Authority of India (TRAI) wants to change mobile interconnection to a “bill and keep” approach as well.

The has big implications. In the U.S. market, “bill and keep” was viewed as favorable to upstarts and attackers, for reasons related to traffic flows.

Simply, small challengers tend to terminate more traffic on other networks than the big legacy networks terminate on the small networks. Using one methodology, the network that terminates a call gets paid for doing so.

Using “bill and keep,” carriers are not paid for terminating calls.

So why the proposed change? TRAI believes a shift to bill and keep would make IP telephony services more competitive, as IP telephony providers would not have to pay the termination charges. As it happens, Reliance Jio, the big new player in the Indian mobile market, will use IP-based voice.

Incumbent mobile service providers would lose revenue under the bill and keep framework, which is why they accuse TRAI of setting policy in ways that favor Reliance Jio, the big new challenger.

Of course, regulators always get accused of that, irrespective of their intended objectives. It is not possible for any regulatory policy to be completely neutral in its impact. And, often, the desired impact is to upset the existing order of things. That appears to be, in substantial part, what TRAI intends.

As always, arcane network interconnection rules have real-world business effects.

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