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Telcos connect with Jio, but fear impact on balance sheets

It’s part III in Reliance Jio’s war with telcos. After raising the issue of non-cooperation by existing operators following the launch of commercial services on September 5, Mukesh Ambani-led Reliance Jio has managed support on interconnection from Airtel, Vodafone and Idea, but irritants still simmer as the industry fears sharp loss in margins due to Jio.

business Updated: Sep 19, 2016 16:08 IST
Ramsurya Mamidenna
Ramsurya Mamidenna
Hindustan Times
A Reliance employee demonstrates Jio LYF phone at their headquarters on the outskirts of Mumbai.
A Reliance employee demonstrates Jio LYF phone at their headquarters on the outskirts of Mumbai.(Reuters)
         

It’s part III in Reliance Jio’s war with telcos.

After raising the issue of non-cooperation by existing operators following the launch of commercial services on September 5, Mukesh Ambani-led Reliance Jio has managed support on interconnection from Airtel, Vodafone and Idea, but irritants still simmer as the industry fears sharp loss in margins due to Jio.

On Sunday, Jio alleged that Airtel was abusing its market dominance and was indulging in “anti-competitive behaviour”, as it put the blame for over 20 million call failures everyday on the older rival.

“Bharti Airtel is providing more PoIs… however, the quantum to be released by Airtel is substantially less than the requirement,” Jio said in a statement. “It is apparent that Airtel continues to abuse its market dominance by imposing onerous conditions, which will imminently hinder RJIL’s ability to efficiently utilise the additional interconnect points.”

Airtel on Saturday said it will work towards releasing the PoIs “well ahead” of the contractual obligation.

Responding to Jio’s charge on Sunday, the Sunil Mittal-led company categorically “the rhetorical statements made by Reliance Jio with regard to the release of additional PoIs from Airtel to Jio and mobile number portability (MNP) requests.”

“With the latest augmentation, the total number of PoIs will be three times the present number. This will be sufficient to serve over 15 million customers, which is much more than their (Jio’s) present subscriber base and their demand for 10 million projected customers,” Airtel said.

PoI is the physical linking of one carrier’s network with others, to enable voice calls to move seamlessly. Interconnection charges are the payments made for mobile phone calls from the network of one operator to another. At present, such charges for wireless to wireless calls stand at 14 paise per minute — paid by the operator on whose network the call originates.

“It is evident that the industry is avoiding giving full interconnection to Jio as it fears that profitability will be hit. These differences will remain till the time the industry decides on a strategy to counter Jio or preserve cash for the upcoming spectrum auction,” a telecom sector analyst said.

Ambani has said that non-cooperation by incumbents had led to 50 million failed calls in a week.

While industry points at capacity as reason for lower interconnection, Rajan Mathews, head of Cellular Operators Association of India, said operators fear financial burden and swamping of outgoing calls.

Service partnerships among telcos in India has been patchy, in what is widely seen as moves to discourage subscribers from migrating. There are fears that cheaper tariffs and lower data charges will erode user base and shave off margins in the crucial run-up to the next round of spectrum auction in October.

“Jio’s tariff plans may gradually push the market toward “data-only plans”, under which customers are charged only for data, not for voice and text messages. Such a shift could be disruptive given that most incumbents still derive bulk of their revenue and profit from voice and text messages,” said ratings firm Fitch, adding, “the top four telcos’ operating profit margin is likely to narrow by at least 200-250 basis points next year.”

Sanjesh Jain of ICICI Securities said Jio tariffs are priced more aggressively than expected. “The free unlimited voice and higher data allowance has the potential to impact Bharti/Idea’s average revenue per user.” Idea and Bharti derive 75% to 80% of their revenues from voice calls.

(With PTI inputs)

First Published: Sep 19, 2016 06:39 IST

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