The crisis of connectivity

Data may be the new oil, but telecom connectivity is definitely the new pipeline. In India and across the world, the quality and quantity of mobile and broadband connectivity determine the delivery to millions of customers.

Our dependence on mobile connectivity is rising at an unimaginable rate. Enterprises, individuals and governments are becoming so reliant on connectivity that a disruption impacts corporate profits, daily habits and utility service delivery. A break in connectivity hurts everyone without discrimination.

In an ecosystem that relies so heavily on telecom connectivity, it is surprising that the mobile telephony industry in India remains in a perpetual state of crisis. The debate over interconnect user charges (IUC) or mobile termination charges (MTC) is one such critical issue. MTC is part of call charges that a consumer pays for connecting with another network. So if a consumer with service provider A calls another who is on service provider B, then the calling consumer has to pay MTC to the service operator of the person who receives the call. This is the foundation of commercial arrangement between service providers to ensure that every one gains. Without such arrangements, networks will not allow calls between them. Callers will then be able to speak only within the same network, effectively killing the idea of the mobile telephone.

In India, the entry of Reliance Jio has triggered a big debate over MTC. New entrant Jio wants MTC to be removed since all its new users will have to pay to other networks to connect their calls. So a Jio user will have to pay MTC if he or she calls a Vodafone or Airtel user. Similarly, a Vodafone or Airtel user will pay MTC for calling Reliance Jio.

In the established business model this would not be a problem. But Jio is in favour of a new model that argues that MTC should be removed. Since Jio is offering free calls bundled with paid data, it is important that callers don’t pay MTC at all.

Existing companies like Vodafone and Airtel have a revenue model that earns from data as well as voice calls. For these companies, about 22 per cent of their revenue is earned from data while 47 per cent from calls. Now within this 47 per cent, an important chunk is MTC. If MTC is removed there will be a severe fall in the earnings of the legacy players.

On an average, the cost of MTC within a one minute call is 14 paise. Here is the key divergence. Existing players say that 14 paise is not enough and it should be raised to up to 40 paise per minute. New player Jio wants the 14 paise MTC to be scrapped totally.

Vodafone and Airtel argue that MTC is an important part of their revenue that funds expansion and allows them to expand 3G and 4G services to all parts of the country. They argue that the current cost of MTC does not meet their expense of offering the termination. A removal will, thus, further hurt the industry’s revenues.  Jio realises that their free call and paid data model will be undermined with MTC and, therefore, want it removed.

In some ways, we are back to the difficult choice between balancing the interest of the consumer with the industry. Jio has created a new model that will be difficult to dismiss. Paid data and free calls is a futuristic model. However, the industry’s ability to survive a sharp cut in its revenue should not be underestimated. High cost of spectrum and the effort to upgrade its 2G network to 4G for the entire country is a tough task too. This requires money that the industry has to earn from consumers.

Telecom Regulatory Authority of India (TRAI) once again has to take some difficult decisions on the two models that the industry is divided over. The answer to this conundrum may not be absolute. At this stage of development, the industry can’t be denied its revenues. Its cost burden can’t be increased. At the same time, the regulator can’t be blind to the new model being created by Jio. The model by Jio may or may not be perfect, but the industry has to be open to experiment with new ideas.

Policymakers have to balance competitive forces, industry’s financial health with new ideas that consumers will benefit from. The line between positive and negative disruption is thin. Predatory models disrupt but destroy an industry and encourage monopolies. Innovative disruption helps consumers and shocks established players out of complacency. The decision for policymakers is simple. Allow innovative ideas and block predatory models. The final decision on MTC will reflect the maturity of regulators. The pipelines that fuel the information society and the fourth industrial revolution must be strengthened. Not weakened.

The author is an economic analyst, adviser, and writer who focuses on technology, globalisation and media. Views expressed are personal.