Reliance Industries shares up 4% after telecom regulator slashes interconnect fee

Posted September 21, 2017

According to TRAI, IUC removal will "encourage flat rate billing and time differentiated charges, both of which will improve capacity utilization and will be in the interest of consumers".

The cellular operators association of India (COAI) has called the interconnect regulation disastrous and has chose to go to the court.

Drop in the rates of IUC means that every telecom operator will have to pay less to other telecom operators for outbound calls from their network. They are arguing that IUC should exist because the ratio of calls between their telecoms and Reliance Jio is asymmetric.

An operator charges their rival an Interconnection Usage Charge when a user ends a domestic call on their network.

The alternative to interconnect charges is the Bill and Keep regime: if you're making a call, then your telecom operator keeps all the money.

Telecommunication Regulatory Authority of India halved the inter usage charges yesterday.

Motilal Oswal says that the move by the regulator is set to progress Jio's breakeven point by a quarter and an earnings boost of 8% to Reliance Industries (parent company of Reliance Jio) by 2019. IUC is a tiny part of the dwindling share of call revenues in total revenues, driven by ever-growing data traffic. But now they can't because they are anxious their customers will move to Reliance Jio, he added. It's also more likely that your network will receive more incoming calls from other networks. This is because the major operators follow calling party pays (CPP) regime under which the calling party pays to his/her service provider for the call, while the called party does not have to pay for the call.

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The move may see lower call charges as the telecom regulator has cut the rates paid by an operator for termination of mobile call on a rival network by nearly half from current 14 paise.

"It is appalling that the incumbent operators have still gone ahead and made untrue and baseless allegations against the process for determination of IUC or the regulator".

EBITDA margins of Bharti Airtel, Idea Cellular and Vodafone India may decrease by 3%-6% in the financial year ending March 2018 (FY18). It also accelerated the consolidation rate in the industry and put a higher emphasis on charging for data.

"We are extremely disappointed with the latest regulation on the IUC, especially at a time when the industry is facing severe financial stress".

"We are disappointed with this decision and are now considering our options", Vodafone India said in a statement.

The Telecom Regulatory Authority of India (TRAI) has just slashed the prices of interconnection fees paid by Indian operators.

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