Reliance Jio’s ARPU may jump after ending free voice calls for users: Ind-RA rating agency
The rating firm said that Reliance Jio’s move to end free voice calls will help support industry average revenue per user.
Reliance Jio drew sharp reaction from the competing operators after it decided to end free voice calls for its subscribers. Rating agency India Ratings and Research (Fitch Group) believes the move will help Reliance Jio increase its Average Revenue Per User (ARPU). The agency also gave a detailed report on how the move is likely to impact Airtel, Vodafone Idea, and overall telecom industry.
The group said Reliance Jio's ARPU could jump by about ₹9 and EBTIDA by 15-18% in fiscal year 2020 assuming the usage and calling patterns remain the same and that the zero interconnect charge plans are deferred.
"However, the levy of additional charges by R-Jio will discourage users to call other operators from R-Jio, possibly leading to lower voice traffic on R-Jio network and hence could constrain the telecom giant's actual EBITDA benefit at 8%-10%," it added.
According to the group, rival Vodafone Idea and Bharti Airtel are now likely to see lower incoming calls to their network from Jio and may hurt their IUC revenues. The group revealed that the total IUC income of Vodafone Idea stood at 10% whereas Airtel had 3%. Reliance Jio's move is also may lead to Airtel and Vodafone Idea losing more subscribers to the former.
The rating agency pointed out that the move could encourage Vodafone Idea and Airtel to increase their tariffs and improve their revenues.
"However, Ind-Ra believes the benefits for Voda-Idea and Airtel would be short-term and the marginal recovery of around 10% in ARPU may not help in addressing the unsustainable debt levels, and improve credit metrics. Ind-Ra has maintained a negative outlook on the Indian telecom sector due to intense competition, elevated debt levels and continued reliance on capital infusion for debt servicing and capex," it said.
"In Q1FY20, outgoing calls as a proportion of total offnet minutes of usage (MoU) for R-Jio, Voda-Idea and Airtel stood at 64%, 41% and 45%, respectively. Also, of the total offnet voice traffic, net incoming MoU as a proportion of total offnet MoU stands at negative 29% for R-Jio whereas the same is 9% and 19% for Airtel and Voda-Idea respectively, implying that network voice traffic imbalance is significantly higher for R-Jio compared with peers. Hence, R-Jio remains a net-payer of IUC expenses, whereas Voda-Idea and Airtel are net-receivers of IUC receipts. The move by R-Jio to start recovering IUC from customers would address R-Jio's concerns that the zero IUC regime may get postponed by Telecom Regulatory Authority of India beyond its scheduled date of 1 January 2020," the agency said.
The report comes shortly after Reliance Jio decided to do away with free voice calls and charge users 6 paise per minute on calls to other networks. Reliance Jio revealed that it had paid nearly ₹13,500 crore in IUC to rival telecom operators in the last three years. Reliance Jio said its network registered about 25 to 30 crore missed calls on daily whereas the call back made by Jio customers led to 65 to 75 crore minutes of outgoing traffic. The company also pointed out that the TRAI had aimed at abolishing IUC charges by January, 2020 but the recent consultation paper indicates a possible delay.
Both Airtel and Vodaone Idea have backed the IUC charges citing a large subscribers in India still using 2G network.
"The assumptions made by TRAI were to evaluate two factors: One was the adoption of VoLTE, which TRAI assumed will bring the cost down. Second, with the growth of smaller sized operators, symmetry of traffic would ensue. Both these have not materialized," Airtel said in a statement.
"Vodafone Idea operates basis the singular principle of pro-consumer and pro-choice. Accordingly, our offerings are completely transparent, affordable and cater to a cross section of society and consumers with varying consumption needs via multiple technologies 2G, 3G & 4G. Even today over 50% of Indian citizens use 2g and feature phones and we service them in remote parts of the country even when it is unprofitable for us to do so," Vodafone Idea said.
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