Since telecom regulator TRAI is looking to reduce the Interconnect Usage Charges(IUC) between the telecom operators, the move is set to benefit Mukesh Ambani led Jio which may break even faster but would affect the operating profits of Idea and Airtel.
IUC is a charge paid by the operator of a network from where a call originates to the telco where it terminates. The charges at the present moment is 14 paisa per minute and as per the Bank of America-Merrill Lynch report “its net interconnect payments could come down materially, helping it to achieve EBITDA (earnings before interest, tax, depreciation & amortisation) break-even earlier than expected”.
The rate cut would bring down the charges from 14 paisa per minute to 8 paisa per minute which would help Jio in saving 25-30 rupees per customer which may be passed on to the customers in the form of lower tariffs for its plans which may put further pressure on the other operators. This reduction would lead to Airtel taking a 4% drop in their profits and so as Idea which would take a dip of 9% from their profits.
“Jio’s business model works best in a zero IUC regime as it offers unlimited data and free voice, while its margins are capped when the IUC is above zero,” said Rajiv Sharma, HSBC director and telecoms analyst.
On the other hand telecom biggies like Airtel, Vodafone and Idea which is controlling more than 85% of the market combined is looking for increase in IUC charges from 14 paisa per minute to 30-35 paisa per minute which would help them in getting back to rythm as they all were forced to reduce their tariffs considerably on talktime and data packs.