Airtel disappointed, Vodafone considering options after ‘non-transparent’ IUC cut
Bharti Airtel criticised the TRAI for slashing mobile termination charges to 6 paise from 14 paise.
Mobile operators Vodafone India and Bharti Airtel on Wednesday expressed disapproval over the Interconnect Usage Charge (IUC) revised by the Telecom Regulatory Authority of India (TRAI) and said the decision would impact the industry grossly, especially when it is under financial stress.
The telecom regulator more than halved the fee mobile carriers pay for calls made from one network to another, dragging down shares of bigger operators such as market leader Bharti Airtel that are likely to be hit hard by the move.
Operators in India do not charge users for incoming calls, but the carrier from whose network a call originates pays a fee to the network that receives the call. The top players with the highest number of subscribers tend to gain from the fees.
TRAI slashed the termination charges on Tuesday from 14 paise a minute to 6 paise, which will become effective from October 1. The charges will be completely scrapped from January 1, 2020.
Morgan Stanley estimated the fee cut could lead to an about 40% plunge in Bharti Airtel’s annual profit, adding that Reliance Jio Infocomm would be the key beneficiary of the move.
Reliance Jio, backed by India’s richest man Mukesh Ambani, has disrupted the highly-competitive telecoms sector with free voice calls and cut-price data. Being a new player, it has relatively more calls made from its network.
Jio had questioned the interconnect charges, saying that rival operators had already recovered their investments.
Bharti Airtel and Vodafone Group Plc’s India unit, the market’s second-biggest carrier, said they were disappointed by the fee cut.
“The suggested IUC rate, which has arrived in a completely non-transparent fashion, benefits only one operator, which enjoys a huge traffic asymmetry in its favour,” Airtel’s official spokesperson said.
Airtel, in its statement on Wednesday, added the sharp drop in the IUC rate will only help transfer a part of its cost to other operators, thereby, further worsening the financial health of the industry.
“As part of an industry, which continues to be a critical driving force behind the economic growth in the country, we are genuinely dismayed by this decision,” it added.
Vodafone, on its part, said it is considering their options in response to the TRAI’s decision and added unless mitigated, the decision would have serious consequences for investments in rural coverage, undermining the government’s vision of ‘Digital India’.
“The Indian telecom industry is already experiencing the greatest period of financial stress in its history. This is yet another retrograde regulatory measure that will significantly benefit the new entrant alone, while adversely affecting the rest of the industry as a whole,” Vodafone’s spokesperson said.
The Cellular Operators Association of India, which counts Bharti, Vodafone and Idea among its members, said carriers would take a severe hit from the reduction to interconnect fees.
“It’s going to exacerbate the financial condition of the industry,” said the association’s director general, Rajan Mathews, referring to falling profits and high debt resulting from costly airwave auctions and a brutal price war.
The sector is already seeing a consolidation, with Vodafone and Idea having agreed to a merger, while smaller carriers Reliance Communications and Aircel are combining their mobile operations.
Shares in Bharti Airtel fell as much as 6%, while third-ranked Idea Cellular shed up to 7%.
Reliance Industries, the parent of Jio, rose 4% in intraday trade versus the wider Mumbai market that was up a slight 0.1%.