How Ringo works? Is it illegal?
In other countries such as US, the telecom operators can negotiate interconnect charges amongst themselves. This made US operators to drop interconnection charges to such an extent that it’s possible for them to offer unlimited free calling as an add-on to their data packs. However in India, the interconnection charges are set up by the telecom regulator TRAI, which all operators need to comply with. Interconnection charges are what an operator from whose network a call originates pays to the network where the call terminates. So for example if I initiate a call from Airtel to Vodafone, then Airtel needs to pay Vodafone 14 paise/min for the duration of the call. In case the call is made between the same network, for example Airtel to Airtel then the network can save on interconnect charges. This is the reason why several times in rate cutters, the tariff between the same network is much lower than the tariff between different networks. In February 2015, TRAI revised the interconnect charges in order to push the adoption of landlines and give smaller telecom operators a boost. Earlier, the interconnect charges were 20p/min between mobile phones to mobile phones, mobile phones to landline, landline to mobile phones and landline to landline. Following the revision, interconnect charges between mobile phones to mobile phones was made 14p/min and any call originating/terminating at a landline was made free of interconnect charges. The actual aim of removing interconnect charges for calls originating and terminating at landlines was to boost the appeal for landlines which have been facing a steady decline. This resulted in Airtel giving unlimited local and landline calls at 99/month for landline users and BSNL made calls after 9 PM free of charge. However Ringo made use of the same rule to earn much more profit than telecom operators as well in case the app took off. In Indian telecom industry, interconnect charges are what primarily determine call rates. Higher the interconnect charges, higher the call rates. Now with TRAI abolishing interconnect charges for landline to landline calls, Ringo saw an opportunity. Whenever a call was made through Ringo app (obviously via a smartphone), the call was redirected. A landline presumably made the call to the number intended and then connected both the caller and the receiver. This call was received by a landline number and the original caller was also connected to a landline number. As mentioned before, interconnect charges for calls originating and terminating from a landline are nil, so Ringo was basically connecting two mobile phone users for no charge through a hack of sorts. The best part is Ringo actually charged users 19 paise ($0.0028) a minute and by connecting through landlines was able to avoid interconnect charges. Since Ringo was buying minutes in bulk at wholesale rates, the major part of 19p/min was profit for Ringo. When a call is placed, a traditional cell phone operator needs to pay 14p/min as interconnect charges to the network where the call ends. Plus he also needs to invest in infra, spectrum and pay taxes and what not. Ringo didn’t have to set up infrastructure anywhere near what a traditional operator sets up and also bypassed interconnect charges. So they basically made more profit without much investment. It’s therefore no wonder that telecom operators have blocked Ringo. As I said earlier, telecom operators in India still get a majority of their revenue through voice and if anyone threatens that, they are bound to react. Although Whatsapp has managed to escape since the entire call was processed over the internet, that’s not the case with Ringo. Only while initiating the call, one needs internet and the rest of call is done in a pretty traditional manner with various hacks to reduce costs. Ringo insists they haven’t broken any rule and are fully compliant with the law. Now that TRAI has gotten involved, it’ll be very interesting to see how this issue unfolds and what decision will be taken.
