Get that IUC right

Have to account for all spectrum costs

While the telecom regulator, Trai, has put out two consultation papers on whether the interconnection usage charge (IUC) should be changed—among the options discussed are lowering it dramatically or moving to bill-and-keep that favours newcomers over incumbents—there is a more serious issue of whether even the current regime is fair. When the IUC was last fixed in 2015, the Trai took into account only the costs of 900 MHz and 1800 MHz spectrum—it assumed, of course, that more spectrum was obtained through auctions as compared to that given on an administered basis. This, however, was incorrect since telcos have also bought spectrum in other bands such as 800 MHz, 2100 MHz, 2300 MHz and 2500 MHz—indeed, they are also going to be bidding for spectrum in the 700 MHz band soon. It can be argued these bands are for ‘data’ while the IUC only applies to voice calls and not to data, but this is missing the wood for the trees since all spectrum can be used for voice and data interchangeably—even the 900 MHz and 1800 MHz spectrum that Trai accounted for while calculating IUC is used for data today. Also, even if spectrum is used for data, its costs still need to be recovered. Right now, with data usage in its infancy—indeed, the expected growth has not materialised and data usage is slowing —applying an IUC on data will only reduce its usage; so, data charges need to be cross-subsidised and the IUC is the best way to do this.

Also, it is not clear what spectrum prices Trai has applied for the 900/1800 MHz spectrum—the last auctions concluded on March 25, 2015, while the IUC was announced on March 1, 2015. If Trai took the base price in the auction for its calculation, it was clearly incorrect since the final bidding was many times the base price in most telecom circles. That is why, for instance, the 2015 IUC showed spectrum costs as a mere 5% of the IUC while, given the amount of money spent on the auctions, it should have been a lot higher. When the Trai comes out with its final IUC numbers, it will do well to spell out what costs have been taken for spectrum, so that telcos can see if they match with what they have spent. Since spectrum needs have also gone up dramatically, such transparency will also let telcos know just how much spectrum per operator has been assumed in Trai’s IUC model—if it assumes 15 MHz while telcos actually have 25 MHz, for instance, the calculations will be incorrect.