Making mobile more affordable with abolition of interconnect fees

Key reforms that Sri Lanka’s Telco sector needs are lagging behind

by Sanath Nanayakkare

As the nation’s economy continues to experience a state of unprecedented turmoil, most Sri Lankans are tightening their wallets wherever they can. While it may be possible to cut down on extravagances, when it comes to the essentials Sri Lankans are faced with a stark lack of choice. Meanwhile, in an increasingly digital world, the definition of ‘essential’ has also expanded to include telecommunications.

While the island-wide expansion of telecom coverage has resulted in explosive growth in the consumption of mobile data, Sri Lanka’s lowest income segments still tend to rely less on mobile data and more on direct voice calls in order to stay connected.

However, speaking to The Island yesterday, a knowledgeable source in the Telco sector noted that structural issues in the sector – from the lagging implementation of Mobile Number Portability (MNP) to regressive fee structures such as the currently prevailing Interconnection Usage Charges (IUC) – place a disproportionate burden on Sri Lanka’s low income population.

IUC is the price charged by a particular network owner when they receive a call from outside of their network for the purpose of interconnecting a voice call to their network. Typically, telcos with the largest user bases earn the most from these IUCs. But it is always the user who gets charged with this fee. The source noted that these fees effectively function as a ‘proxy tax’ on the very segments that rely on it the most, while the benefits of this ‘tax’ are almost exclusively enjoyed by industry incumbents with the largest user bases.

Abolishment of such fees would bring Sri Lanka’s mobile industry into closer alignment with established global best practices by lowering standard call rates for all Sri Lankans for voice calls. After significant delays, IUCs were abolished in India in January 2021, in a move which has been widely credited with considerably easing the financial burden on consumers. Similar measures are also currently rolled out in Bangladesh, Nepal, and Israel.

Following the introduction and popularity of unlimited monthly plans for voice and social media for pre and postpaid customers by Airtel Lanka over the last quarter, the Sri Lankan market has shifted into mirroring their products with unlimited deals now appearing across all networks. However, even with such unlimited offers now available, abolishment of IUC will make unlimited call packages more affordable.

“Data has become the core business of all telco service providers. At the same time, voice calls are no longer the privilege they once were in previous decades. Given these historic trends, and especially in light of the current economic pain felt by all Sri Lankans, it is high time that IUCs were abolished, and initiatives like MNP be implemented in order to pass the maximum benefit possible to low-income groups who are the heaviest consumers for voice calls.” he said.

Such measures will even the telco playing field, resulting in increased competition between operators, and most importantly, lower prices for consumers. However, it appears that without pressure from both consumers and regulators, these reforms are unlikely to move forward, and therefore, will remain stagnant.