On December 17, 2019 TRAI, the Indian regulator, announced it would delay the move to a bill-and-keep system for mobile termination rates (MTRs). MTRs have been declining for many years, and in September 2017 it was announced that the country would move to zero termination rates from 2020. However, operators are not ready to implement the new regime and have cited low levels of IP-based mobile traffic as a major concern. The regulator has agreed to delay the change in charging method until 2021, and operators will continue with the existing long-run incremental cost (LRIC) model until then.
While the regulation of MTRs remains on regulators' agendas around the world, it is no longer a high priority for them. Markets have generally reached a satisfactory level of competition following regulators' attempts to drive down the cost of calling mobile networks. This, in turn, benefits consumers by reducing retail prices. This topic has also lost importance because of the rise of messaging apps such as WhatsApp, Facebook Messenger, Skype, and so on.
As cost-oriented rates continue to fall, alternative charging regimes such as bill and keep (B&K) become more viable. B&K involves operators recovering costs associated with terminating a call from their own users. The reduced impact of MTRs on retail prices increases the possibilities for regulators to move away from calling party pays (CPP) to another regime. Adopting a B&K approach would put an end to the long debate on issues such as the appropriate cost model for calculating termination rates. However, currently the majority of countries around the world continue to adopt a CPP approach. Having said that, a few countries have already considered their options and decided to adopt a B&K regime. Singapore, for example, adopted the approach many years ago.
The discussion about moving to future charging principles such as B&K has also been progressing in India for some time. TRAI decided in 2017 to change the charging method from LRIC to B&K from 2020. However, on December 17, 2019 the regulator announced it would delay the much-anticipated move to zero termination rates for mobile-to-mobile calls. The rates were planned to end in January but will now continue at the same level of INR0.06 ($0.00084) per minute until the end of 2020. The new deadline to move to a B&K system is January 1, 2021. Consultation with the industry revealed that operators were not ready to implement the new system. The main concern is that the move might not yet be feasible because not enough mobile traffic is IP based.
There will be both winners and losers when the country finally changes to a B&K regime. It is, therefore, expected that this decision to delay will be welcomed by some operators, particularly Vodafone Idea and Bharti Airtel, which have been struggling with increased regulatory fees and price pressures in the market. Idea Cellular, for example, announced in January 2018 that it had recorded a year-on-year decline of 24.9% in revenue for the three months to December 2017. The operator attributed this to a reduction in the MTR to INR0.06 ($0.00086) in October 2017 and described the MTR change as having a major impact on many operators, warning that it would reduce investable funds for the government's "Digital India" program. However, Reliance Jio, which is a net payer in the interconnection market and had lobbied for the rates to be scrapped, will likely not be as happy to see the implementation date pushed. Jio offers its subscribers unlimited calls, which has resulted in the ratio of incoming to outgoing traffic reaching 9:1 for incumbents. Therefore, it is expected that the change to B&K would greatly benefit Jio, saving the operator around $690m annually.
In the meantime, TRAI has also started a consultation on mobile retail tariffs, which closes on January 17, 2020. This follows calls from operators for the regulator to set a floor for tariffs because increased competition has been driving down prices, which has led to concerns over the health of the sector and has been restricting operators' ability to invest in their infrastructure. The regulator has acknowledged the huge investment needed from operators in their networks to maintain capacity for the growing consumption of data services, maintain a high quality of service, and ensure the sector remains competitive and continues to grow. Therefore, it is important that they remain profitable. However, TRAI is reluctant to fix a price floor because such a move distorts market forces and could lead to inefficiencies as well as reduced innovation, which are all harmful to consumers. A final decision on the regulator's approach to tariffs is expected in 1Q20.
Interconnect Benchmarks: 3Q19, GLB005-000189 (September 2019)
Trends in Mobile Termination Rate Regulation in 2019, GLB005-000136 (April 2019)
Sarah McBride, Analyst, Regulation