Reduction in MTC will adversely affect the telecom sector: Vodafone CEO

UK-based telecom major Vodafone Group Chief Executive Officer, Vittorio Colao has written to telecom minister Manoj Sinha seeking a cut in interest rates for deferred spectrum payments and concerns over a reduction in Mobile Termination charges (MTC).

He said, " We hope that the IMG will recommend a reduction in the interest rates for deferred spectrum payments to 6.25 percent in line with the improved macroeconomic trends and an increase in the period of payment for spectrum."

He also commented, "We are seriously alarmed to see reports that the Regulator is considering a reduction in MTC at a time when the industry is facing such immense hardships. There are only a few operators, like us, who have invested heavily in both rural and urban areas and are proud to have brought connectivity to every Indian's hand. Today 97 percent of a population is covered by telecom. Any move to further reduce MTC risks destroying the very companies that have invested to build this industry."

The existing rate of 14 paise is already below cost. This damages the economic case for connecting rural areas because traffic is largely from urban to rural, with little call origination revenue in rural areas. Even at the present MTC rates, 15-20 percent of our sites run at a loss. Any reduction in MTC risks large scale site shut-down of already unprofitable sites in rural India and which would greatly diminish the population coverage of mobile telephony."

While taking a dig at new entrant Reliance Jio, Colao pointed out, " There is a view being propagated by the new entrant that as a 4G-only operator, it has a cost advantage in the region of 70 percent compared to the established 2G/3G/4G operators. There is no evidence - either Indian or international to support such a claim. If this was indeed true, there would be a number of 4G-only operators emerging around the world, which is not the case. It may be noted that the costs of the new entrant are higher than any other operator, whether in terms of employees."

It is also clear from the TRAI industry workshop on MTC, that RJio has assumed continued growth of an implausible level of paid traffic on its network. However, the present traffic levels are a result of extreme promotional activity and generated by incurring huge losses. RJio is also assuming that it can recover its costs many years into the future. However, continued under-pricing of services leads to a rapidly increasing cost per subscriber, recovery of which will require higher ARPUs in future, which is unfeasible/ unrealistic. It is undesirable for a critical core industry like telecom to be regulated based on the ambition of a new operator with no history of financial sustenance.

"We request your urgent intervention to safeguard the future of the telecom sector and ensure that there should be no further reduction in MTC as it would destabilize the sector, defeat government rural coverage objectives and cause huge inconvenience to citizens, in particular, in rural India," he further added.