Vodafone Group Chief Executive Officer, Vittorio Colao had written to Minister of State for Communication, Department of Telecommunication, Manoj Sinha requesting for his urgent support on two policy matters that have become critical for achieving the Government’s Rural Coverage and Digital India Vision in India.
Colao has made two requests- one, the IMG recommendations; and two, the review of Mobile Termination Charges (MTC). The letter also reiterates Vodafone’s long term commitment to the Government Vision of Digital India. Vodafone has made the following two requests to the Minister for his consideration.
1) Firstly, Vodafone asked the Inter Ministerial Group (IMG) to finalize the steps required to revitalize and correct the structural issues of the industry, will take cognizance of the above submissions. “We hope that the Hon’ble IMG will recommend a reduction in the interest rates for deferred spectrum payments to 6.25% in line with the improved macro-economic trends and an increase in the period of payment for spectrum,” said Vodafone in its letter.
2) Secondly, Vodafone spoke about the Mobile Termination charges (MTC). Recently, it was said that regulator is considering a reduction in MTC at a time when the industry is facing such immense hardships. “There are only a few operators, like us, who have invested heavily in both rural and urban areas and are proud to have brought connectivity to every Indian’s hand. Today 97% of the population is covered by telecom,” stated Vittorio Colao in the letter.
Vodafone further said that any move to further reduce MTC risks destroying the very companies that have invested to build this industry.
“The existing rate of 14 paise is already below cost. This damages the economic case for connecting rural areas because traffic is largely from urban to rural, with little call origination revenue in rural areas. Even at the present MTC rates, 15-20% of our sites run at a loss. Any reduction in MTC risks large scale site shut-down of already unprofitable sites in rural India and which would macro economic diminish the population coverage of mobile telephony,” urged Vodafone.
There is an urgent need to ensure recognition of the work done principle and cost based MTC to ensure that financial investments in rural networks in particular that remain viable, said Vodafone in the letter.
Furthermore, Vodafone is one among the operator who successfully reached telecom to rural and poor citizens. The country’ second largest telecom operator highlighted that it was a bold move to Calling Party Pays (CPP) in 2003.
It is relevant to note that nowhere in the world does Bill and Keep (BAK) and CPP regime co-exists as is being proposed by the new operator. In BAK regimes, the consumers pay for incoming calls, which is unrealistic for Indian consumers, highlighted Vodafone.
There is a view being propagated by the new entrant that as a 4G-only operator, it has a cost advantage in the region of 70% compared to the established 2G/3G/4G operators. There is no evidence – either Indian or international to support such a claim.
If this was indeed true, there would be a number of 4G-only operators emerging around the world, which is not the case. It may be noted that the costs of the new entrant are higher than any other operator, whether in terms of employees (approximately double Vodafone India when including outsourced employees) or infrastructure (significant sole tenancy approach vs the tower sharing approach adopted by other operators).
It is also clear from the TRAI industry workshop on MTC, that Reliance Jio has assumed continued growth of an implausible level of paid traffic on its network. However, the present traffic levels are a result of extreme promotional activity and generated by incurring huge losses.
Reliance Jio is also assuming that it can recover its costs many years into the future. However, continued under-pricing of services leads to a rapidly increasing cost per subscriber, recovery of which will require higher ARPUs in future, which is unfeasible/ unrealistic. It is undesirable for a critical core industry like telecom to be regulated based on the ambition of a new operator with no history of financial sustenance.
“We request your urgent intervention to safeguard the future of the telecom sector and ensure that there should be no further reduction in MTC as it would destabilize the sector, defeat government rural coverage objectives and cause huge inconvenience to citizens, in particular, in rural India,” concluded Vodafone in the letter.
Lastly, the operator also stated that it is looking to reiterate the long term commitment to the Government Vision of Digital India and also requested the regulator’s intervention and consideration on above submissions.