Scrapping Of IUC Positive For Vodafone Idea, Neutral For Airtel, Says Credit Suisse
Vodafone Idea has been a net payer of IUC, while for Bharti Airtel the mix is roughly balanced, Credit Suisse said.
The elimination of inter-operator interconnect usage charges may result in certain operating profit gains for Vodafone Idea Ltd. and some impact for Reliance Jio Infocomm Ltd., while it will be neutral for Bharti Airtel Ltd., according to a report.
The zero IUC regime was previously slated to come into effect from January 2020, but then the telecom regulator deferred its implementation till Jan. 1, 2021.
IUC is a charge that is paid by a telecom company to another operator when its customers make voice calls to subscribers of the rival network, and these charges stood at 6 paise per minute.
On Thursday, Reliance Jio announced that calls by its users to other networks in India will become free from Friday, as the IUC regime ends.
"While telcos per se do not give a mix of on-net and off-net calls leave alone the incoming/outgoing bifurcation, TRAI's data from year ago indicated that share of off-net incoming calls was increasing for Jio (and as a corollary outgoing calls decreasing) as it gained scale," Credit Suisse said in its note.
However, since then Jio has capped off-net outgoing calls and also gained subscriber market share while Vodafone Idea has lost market share.
Consequently, Jio has now become a net receiver of IUC and Vodafone Idea a net payer, it said adding that for Bharti Airtel the mix is roughly balanced now.
"Consequently, elimination of IUC should result in some EBITDA (Earnings before interest, taxes, depreciation, and amortization) gains for VIL and some impact for Jio. Whereas, it will be neutral for Airtel," the note added.
With Jio's announcement of making off-net calls (outgoing calls to other networks) free, Credit Suisse said it expects the company to do away with caps on outgoing off-net calls for all in one plans without changing the tariffs. Jio's IUC top ups would also become redundant and are expected to be discontinued, it said.
"This would make Jio's tariffs comparable to Bharti Airtel and Vodafone Idea whose plans do not have caps on outgoing off-net calls. We believe that all-in one plans are the most popular for Jio, and thus see limited impact of the announcement on Jio as it would not change the pricing of plans for consumers," it said.
However, elimination of IUC would also result in loss of business-to-business IUC revenues from other operators for off-net calls terminating on Jio's network, it added. VIL may see some benefit, being a net payer of IUC.