MUMBAI (NewsRise) -- India's telecom regulator is reviewing a January deadline to scrap the so-called interconnection fee on wireless operators amid contention that the removal of the levy would benefit new entrants such as Reliance Jio Infocomm while eroding revenue of incumbent players.
On Wednesday, the Telecom Regulatory Authority of India sought a response from the industry on the parameters that should be adopted to decide on an alternate date for scrapping the charge.
In 2017, the regulator had cut the interconnect usage charges per mobile phone calls to 0.06 rupees ($0.0008) a minute from 0.14 rupees, with a plan to fully abolish the charges by January 2020. Incumbent operators such as Bharti Airtel and Vodafone Idea had slammed that plan, saying such a move would crimp the revenue they earned from every call to their network, while helping new entrant Reliance Jio Infocomm save hundreds of millions of dollars.
Jio, backed by billionaire Mukesh Ambani's flagship Reliance Industries, has a large number of outgoing calls to rival networks, thereby benefitting from the abolition of the charges.
The regulator's latest announcement sparked gains in the shares of Bharti Airtel and Vodafone Idea that have been reeling under a cut-rate price war triggered by Jio. Bharti Airtel gained 0.6% while Vodafone Idea jumped about 12%, its biggest gain in a month, in Mumbai trading. Shares of Jio's parent Reliance Industries lost 2.2%, while the benchmark S&P BSE Sensex closed down 1.3%.
Jio roiled India's telecom market with the launch of wireless services in 2016, offering free voice calls and low-cost data plans. The price competition pushed existing players to consolidate or exit, shrinking the industry that once had more than a dozen players.
According to Jefferies, a delay in scrapping the deal will be a big booster for Vodafone Idea, which earns about 30% of its operating earnings from interconnect usage charges. In August 2018, Birla Group-backed Idea Cellular merged with the Indian operations of Vodafone in a $23 billion deal to create Vodafone Idea.
However, since then Vodafone Idea has been contending with loss of market share amid slowing investments and declining network quality. According to the TRAI's latest data, Vodafone Idea saw its user base decline by 3.4 million users in July, while Bharti saw a 2.6 million drop in subscriber base.
Both the companies have been weeding out their low-paying users in a bid to strengthen the quality of their revenue.
For Bharti, the impact of a delay in abolition of the termination charges would be a 5% jump in operating earnings, while such a move would hurt Reliance Jio as it pays 18% of its operating profits as interconnect usage charge, Jefferies said.
The TRAI consultation paper shows that though the imbalance in the inter-operator traffic is reducing over a period, "it still exists." The regulator's decision to progressively scrap the charges was aimed at shifting the industry to the next-generation cellular technology, 4G. However, 4G subscriber penetration in India still stands at 45%.
"The call for review by the TRAI is quite unexpected and suggests it could be something which might eventually go through given the highly stretched balance sheet of at least one of the operators and also as it has no implications for government revenues," Citigroup said in a report on Thursday.
Bharti's debt at the end of June stood at a whopping 1.17 trillion rupees, while that of Vodafone was 993 billion rupees. The two companies have been raising money via rights issues and selling stakes in towers businesses.
--Dhanya Ann Thoppil