Reduced call connect charges can help Reliance Jio expand its market share

The Indian telecoms regulator’s decision to reduce a fee operators pay each other for calls made from one network to another could help upstart operator Reliance Jio to step up its aggressive push for market share.

Reuters

Reuters

While the regulator’s move is a negative for market leaders Bharti Airtel, Vodafone India and Idea Cellular, which earn revenue from rivals for every call made to their networks, it will save Reliance Jio hundreds of million of dollars, analysts said.

Jio, backed by India’s richest man, Mukesh Ambani, has shaken up the market since its launch last year, offering unlimited free calls and cut-rate 4G data services. And now it could have a further $550 million to $600 million a year at its disposal after the fees change, brokerage Kotak estimates.

The Telecom Regulatory Authority of India (TRAI) cut interconnect usage charges for mobile calls to 0.06 rupees ($0.0009) a minute from 0.14 rupees late on Tuesday, effective from Oct. 1, and plans to abolish the fee entirely from 2020

“That this move by TRAI opens up the possibility of Jio becoming more aggressive is a clear negative for incumbents in our view,” Kotak analysts wrote in a note.

Even if Jio does not cut its prices further, it could use the savings to deepen its network reach by adding more cell towers, analysts say, hurting rivals who are already reeling under falling profits and heavy debt in the world’s second-biggest wireless market by user numbers.

Bharti Airtel, the biggest player, could suffer a 5 percent decline in its India wireless earnings before interest, tax, depreciation and amortisation (EBITDA) because of lost interconnection earnings, Morgan Stanley estimates, adding that full-year profit after tax could fall by about 40 percent.

Shares in Bharti Airtel ended 0.5 percent up after falling as much as 6 percent, while third-ranked Idea Cellular closed 3.7 percent down. Reliance Industries, the parent of Jio, rose 1 percent after touching a record high.

Technology Boost?

Analysts said that TRAI’s move is likely to spur companies to embrace a more efficient and cheaper voice-over-LTE (VoLTE) network, which Reliance Jio currently uses.

Though most Indian operators use traditional networks to provide voice services, the global trend is towards integrated networks in which voice is carried as data packets. Bharti Airtel has already announced the launch of a VoLTE network in financial hub Mumbai and has said it will expand it nationwide.

Explaining its decision, TRAI said that telecoms operators globally were reducing interconnection charges and a delay in cutting the fee in India could hold up newer technology and prevent customers from getting the best rates.

The International Telecommunication Union has previously said that incumbent operators often use interconnection charges to stave off competition from new rivals.

Bharti Airtel and Vodafone India both said they were disappointed by the regulator’s move.

Jio and Idea did not respond to requests for comment, but an industry lobby that counts Bharti Airtel, Vodafone and Idea among its members said it expects a “severe” hit for the carriers.

“It’s going to exacerbate the financial condition of the industry,” said Rajan Mathews, director general of the Cellular Operators Association of India, referring to the falling profits and high debt that have resulted from costly airwave auctions and a brutal price war.

That has already prompted industry consolidation. Vodafone India and Idea have agreed a merger, while smaller carriers Reliance Communications and Aircel also aim to combine their mobile operations.

Disclosure: Reliance Industries Ltd is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd


Published Date: Sep 20, 2017 08:17 pm | Updated Date: Sep 20, 2017 08:17 pm