Free Press Journal

Telcos split over method for charging interconnect charges

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New Delhi: Telecom operators spoke in different voices today as the regulator Trai called them for an open house to discuss network connection charges that impacts mobile rates.

The regulator organised a discussion on Interconnect User Charge (IUC), which one telecom operator pays to another for completing calls and SMSes.

Telecos were split on Bill and Keep (BAK), Long Run Incremental Cost (LRIC) and Fully Allocated Cost (FAC) methods for calculating mobile termination costs.


State-run BSNL and Reliance Communication were in favour of using BAK for calculations.

Bharti Airtel said that the fully allocated cost (FAC) model assures recovery of full cost, including historical costs, as it relies on actual data furnished by operators.

On the other hand Vodafone said that cost based approach on work done principle is the most appropriate method.

Under BAK, a service provider does not have to pay termination charges to its interconnecting operator and the service provider bills its own customers for outgoing traffic.

While LRIC involves determining the incremental cost of providing an additional unit of service over current levels and over a defined future period of time.

FAC involves allocation of all historical costs incurred to date for individual services based on a set of criteria like relative capacity utilisation, minutes of usage or proportional revenue generated.

It considers costs that are both forward looking and incremental, which would generate a credible charge that reflects real economic cost for providing interconnection.

However in its consultation paper on IUC, Trai said: “Cost-based IUC have a strong economic rationale, however, there is no single, simple way to estimate the interconnection cost. Determination of cost-based charges is a complex exercise.

“The moot question in a cost-based exercise is the relevant costs to be taken into account for determining IUC.”

TRAI is in the process of reviewing the interconnect charges. This would be second IUC review by TRAI after the one in 2009. The regulation was framed in 2003.

In the previous review, the regulator had reduced IUC, leading to a reduction in tariffs.

At present, TRAI had fixed a mobile call termination charge at 20 paise per minute for all local and national long-distance charges. This charge earlier varied between 15 to 50 paise depending on the distance.

This means that a telecom company now pays 20 paise per minute charge to the other company on whose network call has been made.

The regulator raised the MTC (mobile termination charge) for incoming international calls to 40 paise per minute from 30 paise, while putting a ceiling on carriage fee of 65 paise per minute for domestic long-distance calls.