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Reliance Jio ends free calls to other networks

Shares for rivals Bharti Airtel, Vodafone Idea jump in response

  © Reuters

MUMBAI (NewsRise) -- Reliance Jio Infocomm, the wireless venture of Reliance Industries, has begun charging its customers for calls made to the networks of other operators, setting the stage for the return of long-elusive pricing power in the industry stifled by intense competition.

Billionaire Mukesh Ambani-backed Jio on late Wednesday said it will start charging 0.06 rupees ($0.0008) a minute on all outgoing calls to the networks of other operators from Thursday, and will continue to do so until the regulator terminates an interconnect charge.

In 2016, the Telecom Regulatory Authority of India more than halved the so-called interconnect usage charges, or IUC, to 0.06 rupees a minute, and said it will scrap this fee by January 2020 hoping that most subscribers will shift to internet-based mobile networks by then. However, a slow pace of adoption of 4G has spurred the regulator to reconsider its decision.

Last month, the TRAI said it is reviewing the January deadline given that a substantial number of users are still not on 4G, and sought a response from the industry on the parameters that should be adopted to decide on an alternate date for scrapping the charge.

"So far, in the last three years Jio has paid nearly 135 billion rupees as net IUC charges to other operators," the company said in a statement. TRAI's decision to review the deadline to scrap the IUC charges has created "regulatory uncertainty," and therefore "Jio has been compelled to recover this regulatory charge for all off-net mobile voice calls so long as IUC charges exist."

Jio, which launched services in 2016 offering free voice calls and cut-rate data plans, has shaken India's telecom market. The price competition pushed existing players to consolidate or exit, shrinking the industry that once had more than a dozen players.

With more than 331 million users at the end of June, Jio has already topped India's telecom market with nearly 32% share of the industry's revenue. The operator has said that it is not chasing revenue as it set sights to rope in 500 million users by 2021, with a 50% share of the revenue market.

While the tariff introduction may be a temporary move, analysts say it could offer a breather to incumbents such as Bharti Airtel and Vodafone Idea that have been contending with bleeding balance sheets.

"Incumbent operators have kept their plans at price points similar to or a premium to Reliance Jio, and hence with this announcement, they will have the liberty to increase prices to that extent," Morgan Stanley said in a note on Thursday. If these companies were to take a price hike similar to Jio, Airtel's consolidated operating earnings could increase up to 18%, while for Vodafone Idea it could increase 32% to 41%, it said. Some analysts say Jio's move is aimed at arm-twisting the regulator into keeping the January deadline unchanged.

"Reliance Jio's current change appears to be a protest to the regulator's move and is likely to exert pressure on the regulator to abolish IUC by Jan. 1, 2020," CLSA said in a note. With the latest move, Jio is estimated to boost its operating earnings by 40%, increasing its average revenue per user by 10 rupees to 14 rupees a month.

Jio's surprise announcement to start charging customers cheered investors. Shares of Bharti Airtel surged 5.1%, while that of Vodafone Idea gained 5.8% in Mumbai trading. Reliance Industries shares rose 2.8%, while the benchmark S&P BSE Index lost 0.8%.

--Dhanya Ann Thoppil

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