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Last Updated : Oct 10, 2019 10:33 AM IST | Source:

Will RJio's IUC charge trigger a re-rating for telcos?

Jio customers will be charged an interconnect usage charge (IUC) rate of 6 paise per minute for calls made to other mobile operators effective October 9.

Representataive Image
Representataive Image

Reliance Jio (RJio) has decided to charge 6 paise per minute from its customers for making off-net calls which, brokerage feel, is strong revenue and EBITDA tailwind for the company and other telecom players as well if they replicate RJio's move.

"We believe this could prove to be a strong revenue and EBITDA tailwind along with improving cash flow for RJio as well as for the incumbents if they follow RJio on IUC pass through. This move may positively impact FY21E EBITDA of telcos by 16 -17 percent if Rjio’s move is replicated by incumbents," said Axis Capital in a note.

The brokerage sees RJio’s move as a defining moment for the industry that has been reeling under the pressure till now due to heightened competitive intensity. "We see this as a trigger for re-rating the industry as it structurally changes the course of average revenue per user (ARPU)," the brokerage said.


Jio customers will be charged an interconnect usage charge (IUC) rate of 6 paise per minute for calls made to other mobile operators effective October 9.

However, there will be no 6 paise per minute charge on (a) all Jio to Jio calls; (b) all incoming calls; (c) Jio to landline calls; and (d) calls made using WhatsApp or FaceTime and similar platforms.

Read more: Jio to charge IUC of 6 paise/minute for voice calls to other operators

Global brokerage CLSA believes the RJio's move will result in a spike of 40 percent in the company's EBITDA if the telecom regulator TRAI defers IUC elimination.

It believes Jio’s IUC charge will pressure TRAI to abolish IUC while it will also make tariffs of incumbents more competitive.

"If Bharti Airtel and Vodafone Idea maintain tariffs, FY21 EBITDA will be 2-11 percent higher," CLSA said.

Citi also sees it as a positive move for Jio which could see a 30 percent jump in the company's EBITDA. However, the financial firm noted that the sustainability of the move was the key as Jio would roll back charges if TRAI decided against deferring the IUC cut.

It also added that it would wait for TRAI’s decision on IUC charge before making any revisions to its estimates.

If incumbents replicate Jio's move, Citi's estimates show, it could result in a 50 percent jump in Vodafone Idea’s EBITDA while Bharti’s EBITDA may see an increase of 25 percent.

Citi believes Vodafone Idea could be the biggest near-term beneficiary, given its high leverage.

Japan's Nomura believes Jio's IUC charge would imply Jio's ARPU increase of nearly Rs 12-14 per month while the average ARPU will gradually increase over the next few months.

The brokerage firm has maintained a 'buy' recommendation on Reliance Industries with a target price of Rs 1,575.

However, Jefferies said that the benefits of the current move for the incumbents were unclear at this juncture.

The foreign brokerage firm expects the competitive intensity to be high for postpaid, enterprise and home segment and has a cautious outlook on Bharti Airtel and Vodafone Idea.

Among the domestic brokerages, Edelweiss expects IUC charges to drive up revenue by 5 percent for Jio and could increase the company's EBITDA by 10 percent.

It sees tariff hike by Jio as positive for the entire telecom industry as it will provide other operators leeway to hike prices proportionately.

(Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.)

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First Published on Oct 10, 2019 10:33 am
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