Memoranda for Submission to the Chief Ministers of the Two Telugu States.

Telecom Engineering

The Reliance Jio Vs. The Incumbent Telcos

Dt:  25/9/17

The Reliance  Jio Vs. The Incumbent Telcos


Dr T.H.Chowdary*


The entry of Reliance  Jio  into telecom service business has led to falling revenues  and  growing losses for the incumbent Telcos.  The incumbents have been asking for increase in interconnection  usage charges (IUC) while Reliance Jio is  wanting for its abolition.  A little understanding  of the  IUC would be useful.


2. When telephone traffic is exchanged between two countries, there are three costs- costs in the originating and  terminating  countries domestic networks and the international  link. These  are  incurred by the  two countries  separately and jointly for the interconnecting international system.  By mutual discussion, the telcos in the  two  countries  arrive at what is  called Telephone  Accounting  Rate (TAR) per minute.  If country A sends 1000 minutes of traffic to country B, and B also  sends  to A the same minutes of traffic, then as the  traffic is balanced, there is no payment from A to B or B to A.  On the other hand, if A sends to B 1000 mnts of traffic but B sends 400 mnts of traffic to A, A will have to pay to B for 1000 minus 400 ie. 600 minutes of traffic at half the  TAR.  The TAR may not be related to what companies  A and  B companies  collect from their  subscribers. This collection rate is priced  by the  companies A&B independently.  The collection rates  affect the number of  calls and  their  duration i.e the amounts of traffic exchanged between A&B.  The  traffic coming  to India form the USA used to be three to four times the  traffic from India  to the USA.  So India used to get huge  amount of  US dollars.  This is  just like  trade  deficit / excess between two countries.  India’s international call rates  were kept high due to ideological  reasons -  only business men need to  call; so let them pay.


3.  The situation between  Reliance Jio and other telephone  companies is like what it was  for the  USA-India traffic some  time ago. Since the  Reliance Jio subscribers  telephone  calls  are free, there is more voice traffic from the R-Jio to the  other telephone  networks. If the  interconnection or terminating charge is high the  non-reliance companies will be the net receivers from the IUC.  That is why the  R-Jio is arguing  for reduction or abolition of the  IUC  while the non-R.Jio companies are  asking for a hike.  From the  customers point of view R-Jio’s proposal is welcome.  From the  non-R.Jio companies point of view, it is loss to them.


4. To terminate the torrential  voice traffic coming from R-Jio, the incumbents have to  augment as well as  upgrade their networks  and  to reduce call drops they have to put more cell towers. These are  huge  capital- requiring tasks.  The incumbents  are already  groaning  under heavy debt of over Rs. 5 lakh crores.  Banks are  tending to  classify them as  “ stressed” assets not yet non-performing. Non- R.Jio telcos are  urging  the DOT to  postpone  collection of spectrum payments an d reduction of  spectrum usage charges. They are  obviously in distress.


5.  R-Jio is a subsidiary of Reliance Industries  which is making huge profits  It has recently issued bonus shares in the  ratio of 1:1 ( I am a beneficiary). R-Jio is making losses; it can continue to lose; the parent can cover them; with indiscernible diminution in profits.  The disruptive competition with unlimited  free voice calls  to its subscribers ( I am one) does not  appear to be  fair, a matter that for as yet unknown reasons, has not attracted  the  Competitions Commission.  The reduction in IUC in the  present  state of  competition appears  unfair, if not punitive  the TRAI’s order reducing IUC is not  understandable.  The incumbent telcos had done a great  job.  The imposts on the   Telcos are the  highest in the  world . Yet  they put a telephone in the  poorest man’s hand.   They deserve a better deal.


6.  Government is greedy. It has sold radio spectrum  to the  Telcos.   They purchased it and are  paying for it.  Why should the  government charge / levy a spectrum usage  charge .  You bought a house and paid  its cost.  But the seller demands that you must pay rent for using the house!  Is this fair? The government having  sold the spectrum and the  Telcos  having  paid and bought it,  levying  usage  charges  is just like  the seller of the  house asking   the purchaser of the  house to pay rent for using  it !


7. Government has been levying  5% of the  adjusted gross revenues of   Telcos as Universal Service Fund (USF).  It has  collected about  Rs. 80,000 cr so far.  About  half of it only  is used  for “subsidising” rural telephony, mostly to the  government owned BSNL.  With so much  lying in  the  government  kitty and some of it being used   for the optical  broad band fibre connections  to  2,50,000 Panchayats ,  the rest ought to be used for  promoting  research and production of indigenously  designed and produced  telecom network equipment and user devices.  The tragic fact of  demonopolisation  of  and competition  is  the near death of  indigenously  developed and produced telecom equipments. We  are importing  billions  dollars worth of  Chinese telecom equipment for all the  telco networks  .  This contributes heavily to the $50 bln per year trade deficit with China.  The Chinese telecom companies  Huwai and ZTE were born later than  India’s ITI . The ITI is  now   surviving on “reservation” orders. The C-DOT which was set up in a mission mode   to design and productionise  electronic  switches  is of  inconsequence  to our networks . It is just a peripheral player. The neglect of C-DOT  and  research in India  is an unpardonable crime  committed by successive  governments, especially those  men in and at the  head of the  telecom department . Is it not a shame that while the ISRO could send  more than  100 satellites, some of them  for foreign  countries,  with one rocket , India   cannot develop and produce    the equipment required by the  telcos and IT companies?  I  wonder how     the Prime Minister  and the  DOT and   BJP and the   NDA are not  taking this matter seriously  – R &D,  creation of IP and productionisation of indigenously designed and developed equipment  for  our telecom and IT networks. The Chinese companies  HUAWI and ZTE have R&D establishments in India, employing Indian talent to develop intellectual  property owned by them and  using it for sale of  products to India. Could not  the state-funded C-DOT be  nourished to pre-empt the  foreign  companies, on Indian soil, using Indian talent?  (1,083 words)-END-