Jio’s IUC move explained: Telcos will enjoy better average revenue thanks to RIL firm

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Updated: October 11, 2019 6:37:09 PM

While Reliance Jio is expected to get a better average revenue per user now thanks to its IUC move, other telecom companies like Bharti Airtel, Vodafone Idea will also stand to benefit from the new announcement.

Jio tops Trai's 4G mobile broadband chart in Aug with 21.3 mbps speedRepresentational Image

While Reliance Jio is expected to get a better average revenue per user now thanks to its IUC move, other telecom companies like Bharti Airtel, Vodafone Idea will also stand to benefit from the new announcement. “Reliance Jio’s move to recover IUC from the customers points out that the telco aims to increase its ARPU… this will also provide room to the incumbents in the industry to improve their ARPU,” according to a recent CARE Ratings report. Mukesh Ambani’s Reliance Jio recently announced that the telecom firm will recover the telecom costs generating out of IUC and hence is no longer offering a free voice call service.

Even then, while other telecom operators are lobbying for IUC, Reliance Jio is of the opinion that IUC should be withdrawn. However, Reliance Jio’s decision is indicative that industry is expecting the IUC regime to continue post 1 January 2020, even when telecom watchdog TRAI had earlier said that it will terminate all domestic call charges beginning 1st January 2020, CARE Ratings said.

What are interconnect usage charges?

Telecom companies have to pay charges when a user makes a call to another user who is using a different telecom brand. These charges are paid by one mobile telecom operator to another. These calls between two different networks are called mobile off-net calls. The government has set the rate to 6 paise per minute. The same was at 14 paise per minute before October, 2017.

For Jio, the bone of contention is that it is paying more IUC than others as a higher percentage of Reliance Jio users make outgoing calls than receiving incoming calls from other telecom users. For example, while 36% of calls on Reliance Jio were incoming calls from other users, about 64% of them were outgoing in the month of July, CARE Ratings quoted TRAI data. In comparison, Bharti Airtel had 55% of incoming calls and Vodafone Idea had 59% incoming calls. “The higher off-net outgoing MoUs indicate the higher IUC paid by a particular telco to another operator for terminating a call over the other telco’s network,” CARE said.

Meanwhile, in a new report, India Ratings & Research said that Reliance Jio’s latest move to charge 6 paise per minute on outgoing calls to other networks may boost its average revenue per user (ARPU) and EBITDA in FY20. The RIL firm’s ARPU may increase by Rs 9 and EBITDA by 15-18 per cent in the ongoing fiscal, India Ratings and Research said. Mukesh Ambani-led telco may benefit “assuming that usage/calling pattern remains the same and the zero interconnect usage charge (IUC) regime is postponed beyond its scheduled date of 1 January 2020.”

“Also, Vodafone Idea Ltd and Bharti Airtel Ltd may see lower incoming calls on their network, which may impact their net interconnect user charge (IUC) income, which stood at 3 per cent and 10 per cent of total revenue for Airtel and Voda-Idea, respectively,” it added.

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