TRAI cuts call connection fees, Indian operators suffer

By:
Natalie Bannerman
Published on:

Reliance Jio is set to thrive under the newly reduced call connection fees introduced by TRAI

The Telecom Regulatory Authority of India (TRAI) has just slashed the prices of interconnection fees paid by Indian operators.

The move is said to be greatly advantageous to new market entrants Reliance Jio, while simultaneously impacting established players such as Bharti Airtel, Vodafone India and Idea Cellular.

Bharti Airtel released a statement saying that the new rate only benefits a sole operator, "which enjoys a huge traffic asymmetry in its favour" and that the rate "has been arrived at in a completely non-transparent fashion".

Vodafone followed suit saying the new pricing "will significantly benefit the new entrant alone while adversely affecting the rest of the industry as a whole".

According to TRAI, as of 1 October, any operator from whose network a call originates will have to pay the network provider a fee of 0.06 rupee ($0.0009), with a view of abolishing the charge altogether by the year 2020. The regulator has been actively reducing these fees over the last few years, but these charges act as a major source of income for the established which own these extensive networks.

Speaking to Asian Review, Indian brokerage firm Motilal Oswal said that Bharti Airtel’s annual revenue could decrease by 6-7% as a result of the cuts, while Idea, which is in the process of merging with Vodafone, will be affected to a lesser extent as fewer calls terminate on its network. Reliance Jio, which has a large number of outgoing calls to other networks, is a key beneficiary of the cut.

Motilal Oswal says that the move by the regulator is set to progress Jio’s breakeven point by a quarter and an earnings boost of 8% to Reliance Industries (parent company of Reliance Jio) by 2019.

Kotak Institutional Equities, the institutional India brokerage, predicted that Jio, which currently pays close to $1 billion in interconnection fees, will save $550-$600 million (30-33 rupees per user) annually as result to the new charges.

Rajan Mathews, head of lobby group Cellular Operators' Association of India, said: "This is clearly disastrous for an industry already reeling under financial pressure. Majority of the members will seek court relief given the magnitude of the financial loss."

Analysts are forecasting another price war, following what has already been a tumultuous 12 months for the market since Reliance Jio emerged. In its first 6 months Jio amassed 100 million users causing a decline in revenues for Bharti, Idea and Vodafone. 

Only a few weeks ago the conflict continued with Reliance Jio claiming that Bharti Airtel misrepresented facts submitted to TRAI, over these very same call connection charges. According to Jio, Bharti was attempting to hide its profits from the regulator and its claims that it lost nearly 680 million rupees over the last five years over the cuts to connection charges.