Statsguru: Incumbent telcos to face the heat

Last week, the Telecom Regulatory Authority of India (Trai) slashed the mobile interconnect usage charge (IUC) to six paise per minute from 14 paise earlier. While the rate cut was slightly below analyst expectations, it is the steepest reduction (in terms of per cent change) to date, as shown in Chart 1. Trai has now proposed to phase out the IUC by 2020. 

India has one of the lowest IUC rates in the world. As shown in Chart 2, the IUC rate in India is lower than those of other developing economies such as Indonesia and Malaysia, and is even behind those in developed countries like the UK and Australia. But globally the trend has been one of declining IUC rates (Chart 3). In some countries like Brazil and Thailand, the decline has been of a higher magnitude than that of India.
 

Jio is arguably the biggest beneficiary of the IUC rate cut, but it will end up negatively impacting the incumbents. 

According to a report by the Bank of America Merrill Lynch, the earlier projection of Bharti Airtel’s consolidated Ebitda (earnings before interest, tax, depreciation and amortisation) is expected to be impacted by two to five per cent.  After 2020, when the IUC is phased out, the expected Ebitda could decline by more than six per cent, as shown in Chart 4. In the case of Idea, the impact is expected to be severe. According to the report, Idea’s projected Ebitda is expected to be impacted by four to 13 per cent till 2021 and by 15 per cent thereafter. 

After the decision by Trai, analysts expect the larger incumbents to focus on upgrading their networks to Voice over Long-Term Evolution (VoLTE) at a faster pace, as it would lower the cost of call termination on their networks. Others say as operators will now be disincentivised to support low-ARPU (average revenue per user) customers, they will accelerate the shift towards bundled plans.
 

StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines. Compiled by BS Research Bureau