Network Interconnection Now is a Business Model Issue in USA

Network interconnection is more than a technical process whereby companies connect their networks. The business rules for exchanging traffic can help some providers and harm other providers.

As Reliance Jio prepares to enter the USA mobile market, interconnection rules once again are highlighted as a material contributor to firm revenues and business models. The Telecom Regulatory Authority of USA, for example, is taking a look at termination charges.

There is some possibility TRAI could recommend essentially eliminating interconnection charges. That would reduce revenue for the largest mobile companies in USA, and reduce cost for Reliance Jio.

The reason is simply that when networks of unequal size exchange traffic, the large networks always will, on balance, terminate many more calls than the small carriers.

At the same time, the small networks will mostly originate traffic, and will get relatively small amounts of terminating traffic from the big networks.

So low or zero-rated termination helps small carriers, and hurts big carriers, since it is the big carriers that terminate most traffic.

If Reliance Jio plans to offer “no incremental cost” (“free”) domestic calling, then interconnection charges to terminate those calls on other networks has to be set at “no incremental cost” levels as well, at a high level, or else Reliance Jio will subsidize every minute of use.