RIL Surges 4% After Telecom Regulator Slashes Interconnect Charges

Telecom operators to seek legal help against TRAI's IUC slashing

The move may see lower call charges as the telecom regulator has cut the rates paid by an operator for termination of mobile call on a rival network by nearly half from current 14 paise.

By 2020, the TRAI will phase out domestic call termination charges on mobile to mobile calls.

Termination charges are the charges payable by a telecom network where a call originates to the network where the call terminates. "Unless mitigated, this decision will have serious consequences for investment in rural coverage, undermining the Government's vision of Digital India", Official Spokesperson of Vodafone India said.

Reliance Jio said it is appalling that the incumbent operators have still gone ahead and made untrue and baseless allegations against the process for determination of IUC or the telecom regulator.

But Reliance Jio and Aircel, which are a little behind in the race will benefit from the new rates as now they'll be paying a lot less to other networks, which have more subscribers, for outbound calls from their networks. Trai believes that reduction of these charges would benefit the customers a lot. While Jio had been strongly seeking a cut in IUC in order to encourage new technologies and 4G, the demand had been countered by rival telecom players. The experts are also of the view that this move will also increase the competition between telcos. "It should have been implemented in 2014 as envisaged in the 2011 Report submitted by TRAI to the Supreme Court and will be six years too late", said Reliance Jio in a statement.

Global ratings agency Fitch said the cut in the interconnect user charges will lead to transfer of up to $600 million (roughly Rs. 3.859 crores) per year to newcomer Reliance Jio from the incumbent operators.

Analysts are forecasting another price war, following what has already been a tumultuous 12 months for the market since Reliance Jio emerged.

It's a regime that typically benefits the largest telecom operators. Apart from the immediate impact on EBITDA generation, the industry also faces the challenge of continuation of competitive intensity from RJio, given the headroom it has got from the IUC savings, says ICRA in the release.

A cut in IUC means Airtel, Vodafone and Idea will now need to recover a greater share of their costs from their customers, but leave alone being able to raise tariffs, they would most likely be forced to drop tariffs to counter Reliance Jio. But what is interconnection usage charges? With IUC gone, profitability for Airtel will be dented. The elimination of IUC will result in direct benefit to customers through lower tariffs.

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