India Moves to Eliminate Interconnection Fees

India’s TRAI has been working to lower the mobile phone interconnection usage charge since 2016, ordering a reduction in such interconnection fees in 2017, and planning to eliminate the charges altogether by 2020.

Upon such minutiae do business models turn, which is why some mobile operators oppose reducing the interconnection charge to zero. Though in principle, when traffic is symmetrical, such charges result in a net zero revenue impact, termination charges produce revenue.

So some argue that the elimination of interconnection charges should not set the IUC at zero, which is what systems known as “bill and keep” produce.

In principle, lower or zero levels for such fees reduce the cost floor for making calls and using networks.

Bill and keep is a pricing arrangement for the interconnection of two telecommunications networks under which the reciprocal call termination charge is zero. That is a change from the older practice of terminating charges paid by the originating network to the terminating network.

That call termination charges exist at all is a reflection of the notion that it costs a non-zero amount of money to run a network, and that a network completing a call should be paid by the originating network.

There are business implications when traffic is symmetrical, since all major parties basically experience the same amount of terminating calls, but mostly of the “higher cost to consumer” sort. When termination charges are paid, that cost is reflected in the retail rates for using a network.

On October 27, 2011, the U.S. Federal Communications Commission adopted a bill-and-keep framework for all telecommunications traffic, in large part because of price arbitrage and practices such as traffic pumping and phantom traffic.

Traffic pumping, also known as access stimulation, is a practice by which some local exchange telephone companies in rural areas of the United States inflated the volume of incoming calls to their networks, profiting from intercarrier compensation fees.

Phantom traffic includes calls that do not have the identification information used by carriers to levy interconnection fees. That obviously meant that some firms profited by avoiding termination fees.  

It is arcane, but rules on interconnection do directly affect service provider business models.