Subterfuge, opacity and regulatory warfare

Bank guarantees weren’t all. Ringo’s letter to TRAI mentions various other legal roadblocks incumbent telcos put in front of it to restrict the services it could offer, none of which they imposed on each other.

Who blinks first, Telecom Edition

In spite of claiming to have spent Rs 1,50,000 crore to build India’s first “all IP” network (essentially a computer network transmitting packets of data instead of the voice networks that require dedicated channels to carry voice), Jio’s Achilles Heel was the fact that its customers still need to make voice calls. And those calls need to land on the incumbent’s voice-based networks.

Which require POIs.

As per law, 0.5% are the number of call drops that are tolerable on POIs. But as Jio started adding more and more users to its network in what it called a “test” phase, its call failures started climbing to anywhere between 50-80% for calls made to the three largest incumbent operators.

And thus began an elaborate, high-stakes game of who-blinks-first between Jio and the incumbents, with regulations being the weapon of choice.

When Jio started complaining earlier this year that it didn’t have enough POIs for its users to make calls to incumbent networks, the incumbents said Jio was only conducting tests. So why did it need so many POIs? They said they weren’t obliged to provide POIs en-masse to any non-commercial network.

So Reliance announced a “commercial launch” on September 1, even though it wouldn’t charge any fees till December 31. Naturally, its subscriber base started to swell dramatically. Today it claims to have over 35 million subscribers, with 600,000 to 1 million new ones being added each day, though there’s no reliable way to verify this.

POIs again became the bottleneck. This time the incumbents said there was a “tsunami” of asymmetric traffic from Jio that was threatening to break down their own networks. Instead of ratios like 49:51 or 60:40 they were used to all these years, the ratio of incoming versus outgoing calls from Jio was 90:10 they said.

“Jio’s entry and scale is unprecedented,” said a representative for one of the three large incumbents. He did not want to be named to avoid prejudicing various regulatory and legal cases they are part of. “If you give anything for free, there will be a mad rush. Operators earlier undertook phased rollouts, so POIs could be added in a phased manner.”

To which Jio pointed out that it was willing to pay for as many POIs as required (Ringo says the same), but the operators then picked on the 14 paisa that Jio is meant to pay them for each call that “terminates” on their network. The figure was based on flawed assumptions, they said. The true figure was closer to 32 paisa, which meant they were losing money on every call that Jio terminated on their networks.

There is of course no evidence of this being true, except for the operator’s opaque reasoning. Globally, the trend has been to either drastically reduce termination charges to very low levels, or even do away with them altogether. Some countries like the US have even imposed it on the receiving operator, which can then collect it from its own subscriber via billing.

Then there’s voice traffic itself

It’s important to understand two things about voice traffic – one that it is broadly inelastic, meaning that if you drop tariffs then usage doesn’t keep shooting up. Thus, even zero tariff for voice calls on Jio doesn’t imply that most users will speak 2 or 3 times more than they usually do. And two, the quantum of voice traffic has plateaued in the Indian mobile ecosystem. Jio claims that its overall voice minutes are only increasing by 2-3% per annum per user.

This means at some point, extra voice traffic on the Jio-Airtel connection could merely be shifts from, say, the Airtel-Vodafone or Airtel-Idea connections. Which means existing POIs and E1s are be reconfigured, instead of being bought anew.

Meanwhile, call failures continued to climb for Jio. The graphs below represent outgoing call failures from Reliance Jio to the networks of Airtel, Vodafone and Idea during an average 24-hour period and busy hour respectively (the data is Jio’s) during the last month.

Frustrated at the stonewalling from incumbents, on October 21 TRAI recommended a fine of Rs 3,050 crore collectively on Airtel, Vodafone and Idea.

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