It’s Advantage Reliance Jio As Regulator Cuts Call Connect Fee
Fitch says $500-600 million per year will come to Reliance Jio due to IUC fee cut.
The telecom regulator’s decision to reduce the fee operators pay on cross-network calls will bring in significant cost savings for Reliance Jio at the expense of incumbent operators, helping it break sooner than expected, according to Fitch Ratings.
“We expect the move will result in a transfer of $500-600 million per year from incumbents to Jio,” said the credit rating agency in a media statement. This will strike off 3-6 percent from the operating income of main incumbents – Bharti Airtel, Vodafone India and Idea Cellular – in financial year 2017-18, added Fitch.
Operators pay interconnect charges when one of their customers makes a voice call to a user on another network. The Telecom Regulatory Authority of India on Tuesday cut this rate from 14 paise to 6 paise per minute, a move which the Mukesh Ambani-backed Jio had backed while the telecom industry lobby has vehemently opposed. Operators with larger subscriber bases tend to pay more IUC as the number of calls received on their network are higher.
This will put further pressure on telecom operators which are already under significant stress and unprecedented competition from Jio, said Fitch.
Jio is likely to roll out other offers to increase its subscriber base over the next two years, and the incumbents are likely to continue to respond with price cuts, discounts and promotions of their own.Fitch Statement
The credit agency expects the telecom industry’s average revenue per user from voice and data to decline 5 percent over last year to Rs 150 by March 2018.
The benefits for Jio are expected to gradually fall as its subscriber base grows, said the statement, adding that the asymmetry will be minimal by 2020.
Sector Outlook
- Fitch maintained a negative outlook on the Indian telecom sector, reflecting broader pressure created by the entry of Jio last year.
- Overall revenue from voice calls will continue to drop.
- Jio’s revenue market share, now at around 4-5 percent, is slated to rise over 10 percent by 2018 as it continues with its aggressive pricing strategy.
- Bharti Airtel's earnings before interest, taxes, depreciation and amortisation is seen declining at least 5 percent amid intense competition and lower interconnect fees. Its net leverage ratio may rise to 2-2.2, pushing it closer to the 2.5 mark which may result in a negative rating action, Fitch said.