Telcos to lose out $600 million

New Delhi: Telecom regulator Trai’s decision to halve mobile termination charges is expected to “result in a transfer of $500 to 600 million per year” from incumbent telecom operators to Reliance Jio, Fitch said on Wednesday.

Trai on Tuesday had slashed the termination charge on mobile voice calls to 6 paise a minute, from the current 14 paise per minute which would reduce the cost of such calls.

Termination charge is paid by the telecom operator from where the call is being made to the telecom operator on whose network the call is being received.

This means if an Airtel customer calls a Vodafone subscriber, then Airtel will have to pay termination charge to Vodafone.

Trai said that the termination charges will be eliminated completely from January 1, 2020.

Since incumbent operators, Airtel and Vodafone have, more subscribers a large chunk of calls is expected to terminate on their networks as compared to other operators.  

Fitch said that the financial performance of the main incumbent telcos will be undermined by the plan to reduce the mobile termination rate (MTR) by 57 per cent. “In contrast, the move should bring significant cost-savings and lead to faster-than-expected EBITDA break-even for Jio, a subsidiary of RIL,” Fitch said.

It said that Airtel alone received about $75 million in interconnection revenue from Jio in April-June 2017.  “We expect the MTR cut to reduce the EBITDA of the main incumbents by 3 to 6 per cent in the financial year ending March 2018. This will place further pressure on these companies, which are already facing unprecedented competition from Jio,” said Fitch.  

It said that the industry average revenue per user declined by 20 to 22 per cent year on year in the the first quarter of FY18, reflecting Jio’s offer of free voice, text and data services for six months from September 2016 and its subsequent discounts and promotions to win subscribers.

Most incumbents have lost subscriber market share to Jio during the last two-quarters, with Airtel the exception, it said.

“The removal of the termination charge in 2020 is likely to have a much smaller impact. Jio’s net payment of interconnections fees to incumbents will fall as its subscriber base grows, and we believe asymmetry will be minimal by 2020,” Fitch said.

It said Jio already had 98 million active subscribers at end-July 2017 — a 9.6 per cent share. Moreover, overall voice revenue will continue to drop as a result of Jio free voice call offerings and the rising popularity of data-led ‘over the top’ operators, it added.

Fitch said that it maintains a negative outlook on the sector, which reflects the broader pressures created by Jio’s entry last year. “Jio is likely to roll out other offers to increase its subscriber base over the next two years, and the incumbents are likely to continue to respond with price cuts, discounts and promotions of their own,” it added.