A cellular service provider opting for the fourth slot will have a tough time in the absence of an interconnect agreement between CMSP and FSP. The companies bidding for the fourth operator in CMSP will have to continue with the bidding process in the absence of an interconnect agreement, though this is uncertain. This affects the business model of companies, as the contribution from long distance calls (STD and ISD) cannot be accounted for while making the business model. In the absence of a proper interconnect, the companies will have a tough time in the bidding process as interconnect revenue is a major component of the total revenue.

In the distant past, the FSP have already signed the interconnect agreement with BSNL/MTNL, but CMSP are still negotiating and they have not been able to resolve the differences, inspite of TRAI’s mediation based on the principles of non-discrimination and level playing field. The CMSP have been saying that the FSP are sharing revenues with BSNL/MTNL in the ratio of 60:40, whereas the CMSP are not getting any revenue share from long distance call charges, which they collect from the subscribers and pass on to BSNL/MTNL for the termination of calls. Recently, TRAI has recognized that CMSP incur collection costs and bad debt for collection of long distance calls, which they pass on to the FSP for carrying the call. TRAI has determined that CMSP will keep five percent of the revenue as their share to cover the cost of bad debt and collection costs.

The regulator feels that the interconnect issue between CMSP and FSP will take a minimum of eighteen months, as the two service providers are unable to come to a mutual agreement. Talking about the delay, MS Verma, chairman, TRAI, said that in the absence of the mutual agreement, the regulator has to come out with a standardized accounting system for both FSP and CMSP, approved by the Institute of Chartered Financial Analysts of India and the Institute of Cost and Work Accountants of India. Once the accounting system is out, the service providers will take time to switch to the standardized accounting system. One year of operation in the standardized accounting system will help the regulators to examine the different components, before formulating the revenue sharing arrangement for the calls originating from CMSP and terminating in FSP. So the fourth cellular service provider will have a tough time in making their business model in the absence of interconnect.