Jio charges for voice calls for IUC, rival telcos may wait till Jan 2020
Reliance Jio mobile services are no longer completely free as the company in an unexpected decision announced recently that it would charge 6 paise/minute from its customers for outgoing calls to other network operators to recover the Interconnect Usage Charges (IUC).
But in the immediate period, there may not be any possibility of a tariff hike as Jio awaits the Telecom Regulatory Authority of India’s (TRAI) final decision on the IUC in January 2020.
The IUC is basically the cost paid by one mobile telecom operator to another when its customers make outgoing mobile calls to the other operator’s customers.
The company said that it has paid IUC to Airtel, Vodafone, Idea and other operators while offering free voice calls to its customers. So far in the last three years, Reliance Jio has claimed to have paid nearly ₹13,500 crore as NET IUC charges to the other operators. But in return, it has received none from them. Customers will have to pay IUC charges until the TRAI brings the fee down to zero, which is expected to take place on January 1, 2020.
In its move to charge customers for the first time since its launch, Jio has put the enitre blame on incumbents and the TRAI.
“While the incumbent operators reduced voice tariffs for their 4G customers, they continued to charge exorbitant tariffs to their 35-40 crore 2G customers, and in fact increased the tariffs for voice calls to around ₹1.50/ minute,” said Jio.
“The price differential of free voice calls on Jio network and exorbitantly high tariffs on 2G networks causes the 35-40 crore 2G customers of Airtel and Vodafone Idea to give missed calls to Jio customers. Jio network receives 25 to 30 crore missed calls on a daily basis. This huge missed call phenomena converts the incoming calls to Jio into outgoing calls from Jio to other operators. The 25 to 30 crore missed calls per day should have resulted in 65 to 75 crore minutes of incoming traffic to Jio. Instead, the call back made by the Jio customers results in 65 to 75 crore minutes of outgoing traffic,” it added.
The trigger for Jio’s decision is that the TRAI recently decided to seek views on delaying zero IUC as there were still millions of 2G subscribers who have not moved to VoLTE, so it seems unlikely that the zero-IUC regulation will come into effect any time soon.
The telecom regulator had stated that the IUC may be eliminated/made zero by January 1, 2020 if a limited amount of traffic is terminated on 2G/3G networks and there was a limited imbalance in voice traffic among operators.
TRAI recently started a consultation process to defer IUC elimination from January 1, 2020, given that both these preconditions were not met.
Reliance Jio’s current change appears to be a protest of the regulator’s move and will likely exert pressure on the TRAI to abolish IUC by January 1, 2020, broking firm CLSA said.
Analysts and experts have reacted to the Jio’s move and have said that it would benefit bleeding rivals Airtel and Vodafone Idea who were hit hard due to the ultra-low tariffs offered by Jio.
Now, Airtel and Vodafone Idea are likely to use this opportunity to hike voice rates.
Airtel said the telecom industry wa in a state of deep financial stress. The adoption of VoLTE has been slow while 2G subscribers were still high, causing an asymmetry in traffic.
“Given the massive 2G customer base in India, the cost of the call at 6 paise is already significantly below the real cost of completing the call,” it added.
Airtel and Vodafone Idea have been against any reduction in IUC whereas Jio wanted the charges to go away.
CLSA said that the narrowing tariff differentials positive for incumbents and “with the IUC charge reducing Reliance Jio’s tariff discount to others, its subscriber additions could be impacted”.
“Reliance Jio’s latest move will likely make incumbents’ current tariffs more competitive, assuming they keep tariffs unchanged. Assuming unchanged voice usage, Reliance Jio’s IUC levy will likely bring its 84 day plans’ effective tariff in line with Bharti Airtel and Vodafone-Idea vs the current 13 per cent discount,” the broking firm said.
“Even if Reliance Jio’s off-net outgoing usage declines 30-50 per cent, Reliance Jio plans’ discount to Bharti Airtel and Vodafone Idea’s unlimited plans would be lowered to 3-6 per cent. For 28-day plans, Jio’s plan discount would be lowered from 25 to 14-20 per cent.
“The effective discount reduction should help incumbents gain 4G subscribers if the regulator defers IUC elimination. Bharti Airtel and Vodafone Idea will likely keep tariffs unchanged and focus more on gaining 4G subscribers,” it added.
Meanwhile, the industry will await the TRAI’s final decision on IUC elimination, likely towards December which will determine the incumbents’ course of action.
Telcos Airtel and Vodafone did not respond if they will raise tariffs following this or not.