Seeking “urgent support” from the Indian government, Vodafone Group CEO Vittorio Colao, in a letter to Telecom Minister Manoj Sinha, has said that any reduction in mobile termination charges will “destabilize the sector”.
The Vodafone Group Chief has also expressed hope that the Inter Ministerial Panel set up to assess the financial health of the sector will recommend 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.”
“We are seriously alarmed to see reports that the Regulator is considering a reduction in MTC at a time when the industry is facing such immense hardships…Any move to further reduce MTC risks destroying the very companies that have invested to build this industry,” Mr. Colao said, pointing out that existing rate of 14 paise is already below current cost of about 30 paise.
In a letter dated August 22, Mr. Colao reasoned that 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 greatly diminish the population coverage of mobile telephony,” he warned.
Mobile Termination Charges are payable by the operator whose subscriber makes a call to the operator whose subscriber receives the call, and directly impact the tariff. The older operators — Airtel, Vodafone, Idea Cellular, have been at loggerheads with Reliance Jio over the issue for some time now.
Mr. Colao said Reliance Jio, which has been pitching for zero charges, 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, he said.
“RJio 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,” he said.
The U.K.-headquartered firm also pointed out that till date it has invested over Rs 1,340 billion in India. However, it has been “consistently generation cash losses due to structural issues leading to high costs...”
“The financial position has further deteriorated in the last 9-12 months due to unchecked price competition with services offered below cost for considerable periods of time,” Mr. Colao said.
