TRAI to bring Call Termination fee to Zero by 2014

TRAI has proposed reducing termination charge from 20p to 10p from Jan1-12 with plans of eventually eliminating it by ‘2014. The proposal came following Supreme Court’s directive to TRAI to evolve a new set of interconnect charges. This directive had been given on a petition filed by TRAI challenging TDSAT’s (Telecom Dispute Settlement Appellate Tribunal) order, which had set aside TRAI’s termination cut (in 2009) – from 30p to 20p.

Telecom Operator’s Traffic Estimates – The GSM in:out ratio of 52:48 and CDMA at 50:50 implies there is little impact assuming outgoing traffic remains the same. High proportion of on-net traffic – 43% in GSM and 46% in CDMA also cushions the impact.

With the competitive intensity waning, new entrants bleeding and operators burdened with high debt, we believe that any termination cut is unlikely to be passed on as lowered tariffs in entirety but maybe by half the proportion.

Who will Benefit from Cut in Termination Fee ?Lower termination would reduce losses of new entrants as well as benefit Reliance Communications / Tata DoCoMo as the cost of terminating mins on other networks reduces (higher proportion of outgoing calls). RCOM and DoCoMo also benefit with the CDMA in:out and on-net ratio also marginally superior.

Impact of LTE / Smartpphones / VoIP – By 2014, LTE will be rolled out and their could be atleast 10% of the users on Smartphones and other VoIP enabled devices where in they can communicate free of cost with their data plans. This will definitely have some impact but not much as user base will be very small.

Separately, TRAI has also raised the SMS limit from 100 / day to 200 / day with immediate effect.