Share prices of telecom companies such as Idea Cellular and Reliance Communications ended up to 3.4% lower on Wednesday after telecom regulator Trai more than halved mobile interconnection charges to 6 paise a minute. The scrip of Idea Cellular fell by 3.43% to end at Rs 80.15 on BSE. During the day, it tumbled 7.4% to Rs 76.85. Share prices of Reliance Communications closed the day 1.74% lower at Rs 19.80 after falling 4.21% to Rs 19.30 in intra-day trade. On the other hand, the stock of Reliance Industries, which owns newcomer Reliance Jio, rose 0.85% and ended the session at Rs 847. The RIL stock also hit a 52-week high intraday at Rs 872. However, shares of Bharti Airtel recovered early losses and ended with a marginal gain of 0.39% at Rs 396.25. During the day, the stock had fallen by 6.25% to Rs 370. The Tata Teleservices (Maharashtra) stock also dipped 1.90% to settle at Rs 6.19. During the day, it had lost 3% to Rs 6.12.
Trai on Tuesday announced slashing of mobile call connection charge (IUC) by more than half to 6 paise a minute with effect from October 1, and said no rate will apply from January 1, 2020. IUC refers to the charges payable a telecom service provider whose subscriber originates the call to the service provider in whose network the call terminates. In a note to investors, analysts at Motilal Oswal said the cut in IUC could impact Bharti’s revenue by 6-7%. After deducting the IUC outgo, the net EBITDA impact could be less than 5%. Analysts noted that for Idea, the impact could be lesser given that it has lower incoming off-net traffic. In Q4FY15, when the IUC was reduced to 14 paise per minute from 20 paise per minute, Bharti and Idea saw revenue impact of Rs 1.4 billion and Rs 1billion, respectively, i.e. about 1% and 1.5% of the gross revenue. The impact on Ebitda was minimal.
However, given the launch of RJio, and the subsequent IUC receipts from RJio, the net EBITDA impact could be 2-5% higher than the previous occasion, the report added. AK Prabhakar, head of research at IDBI Capital Reliance will be the biggest beneficiary of the move as they give free voice calls and were paying termination charges to other users. Prabhakar said Reliance could end up saving Rs 1,800 crore in FY 19 because of the move. “Other players like Airtel which have a higher user base will affect as the charges have been reduced by more than 50%,” he said. Prabhakar added that the downside to telecom stocks will be limited as such a move was expected. “Moreover, this move can be challenged in court and if court reverses the order things will come back to status quo,” Prabhakar said.