Will decrease in ITC lead to increase in international incoming minutes?

The TRAI has published in Schedule I of the Telecommunication Interconnection Usage Charges Regulation, 2003 (4 of 2003), in paragraph 1 in the table under column “Termination Charge”, for the words and figures “Rs. 0.53 (paise fifty three only) per minute”, the words and figures “Rs. 0.30 (paise thirty only) per minute” shall be substituted. The new rates will make ISD calls cheaper and will be applicable from Ist February 2018.

The big question is will decrease in ITC from Rs. 0.53 paise per minute to Rs. 0.30 paise per minute lead to increase in international incoming minutes thanks to reduction in grey market calling in the country.

According to industry experts, the Indian operators used to earn about Rs. 4,500 crore per annum of forex for terminating international calls into India and used to pay license fee of about Rs. 450 crore when ITC was Rs. 0.53 paise per minute.

In India, ILD carrier traffic has shown a declining trend in 2016-17 in terms of number of ILD incoming minutes. The main reason for this decline is competition from OTT VoIP services and grey market calling. In 2015-16 in India, total ILD traffic through ILDO carrier route was about 92.4 billion minutes and it reduced to 87.4 billion minutes in 2016-17.

ILD Incoming Voice Traffic in India:

Year – No. of ILD Incoming Minutes (in mn)

2009-10 – 34,235

2010-11 – 49,145

2011-12 – 62,185

2012-13 – 76,354

2013-14 – 75,867

2014-15 – 80,475

2015-16 – 92,404

2016-17 – 87,424

As per the estimates of TeleGeography, in the year 2015, carrier plus OTT combined international global traffic was 970 billion with OTT contributing 520 billion minutes. Impact of OTT traffic could be seen from the fact that international carrier traffic which was growing at 7% CAGR from 2007 to 2014 declined by about 1% in each of the past two years.

Propensity of substitution of carrier traffic with OTT traffic is directly related to penetration of high-speed Internet as well as availability of devices, both of which have been increased rapidly in India in the last couple of years. Therefore, continuation of high ITC will accelerate migration of traffic to OTT, which will not only impact overall revenues of Indian access service providers and ILDOs, nullifying any possible short-term gains, but will also be a security hazard.

First, in view of the significant arbitrage opportunity between ITC and domestic rates, high level of ITC will also give rise to growth of the grey market at the cost of national security and revenues of Indian operators. At present, about 20% international incoming calls terminate in India via grey routes. Therefore, lowering of ITC to the cost level will facilitate shift of international incoming traffic from OTT services to ILD carrier and curb the menace of grey market, which will be in the interest of all stakeholders including security agencies.

It is expected that if the arbitrage opportunity is plugged or kept to a minimum, the attractiveness of the grey route for carrying international incoming voice traffic would be lost, and thereby, the carrier route for international incoming traffic would witness a legitimate growth as Illegal VoIP gateway business in India would become unviable and in turn, the grey market for ILD incoming traffic would eventually cease to exist.

Second, one has to see how the decrease in international termination charges will lead to decrease in ILD tariff leading to demand elasticity thereby increasing no of ILD incoming minutes in India.

All this is win-win for subscribers, operators and government in the long run. The subscribers will benefit with cheaper ISD calls, operators in terms of increased ILD revenue and government will benefit in increased license fees.