Who Gains The Most If Rivals Follow Reliance Jio’s U-Turn
Mukesh Ambani has shown bruised Indian telecom operators a way to earn more revenue.
Reliance Jio Infocomm Ltd., owned by Asia’s richest man, said it will start charging 6 paise a minute for calls made by its subscribers to users of rival networks, partly ending free voice services. That is to compensate for the interconnect usage charge it pays other wireless carriers for calls completed by them after the regulator deferred its decision to scrap the fee from Jan. 1.
Calls within the network and incoming from other operators remain free.
Reliance Jio's launch in 2016 had forced incumbents to also offer calls free and new tariff plans are based on data consumption. What if Bharti Airtel Ltd. and Vodafone Idea Ltd. were to follow Reliance Jio in charging interconnect fee for outgoing calls to other networks?
Calls can be categories in two categories:
- On-network—subscribers calling or receiving calls from users on the same network.
- Off-network— subscribers calling or receiving calls from other users on the rival network.
For the three private wireless carriers, on-network calls contribute about 40-50 percent of the total usage. The rest are off-network voice calls. But carriers pay the interconnect charge only in case of outgoing calls to other networks—or 20-37 percent of their total voice service usage.
If Vodafone Idea and Bharti Airtel start charging 6 paise a minute on outgoing calls to other networks, their revenue in the first quarter of financial year 2020 would have been 7-11 percent higher.
Assuming that 80 percent of this increased revenue would flow to operating profit as costs won’t rise much, their Ebitda would have been 29-48 percent higher, making them bigger beneficiaries. In absolute terms, Reliance Jio would have earned more compared with the other two.