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Last Updated : Oct 09, 2019 10:13 PM IST | Source: Moneycontrol.com

Reliance Jio: Charging IUC from customers amid regulatory uncertainty should be positive for earnings

Jio has promised that this charge will go away as soon as TRAI implements zero IUC

Nitin Agrawal @NitinAgrawal65

Reliance Jio (RJio), which has become the largest telecom operator with a  35 crore plus subscriber base, is facing regulatory uncertainty over the phasing out of the Interconnect Usage Charges (IUC). As a result, it has decided to start charging its customers 6 paisa per minute on the outgoing calls made to other network to recover the IUC which the company pays to other network providers.

IUC is a cost paid by one mobile telecom operator to another when its customers make outgoing mobile calls to the other operator’s customers.

The trigger

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Earlier, the Telecom Regulatory Authority of India (TRAI) had decided to reduce the IUC from levels of 14 paise per minute to 6 paise, with effect from October 1, 2017, and zero from January 1, 2020. As the chart indicates, IUC, over a period of time, has followed a downward trajectory.

Reliance Jio

However, TRAI has now started re-thinking whether to bring IUC down to zero or not, which has led to significant uncertainties for RJio which has paid nearly Rs 13,500 crore as net IUC charges to the other operators over the past years.

Therefore, in light of the regulatory uncertainty, RJio has decided to recover IUC cost from its customers. It has, however, assured that this charge will go away as soon as TRAI implements zero IUC. In fact, RJIo is giving additional data with IUC top-up vouchers so that there is no effective tariff increase till December 31, 2019.

Related stories: Jio to charge IUC of 6 paise/minute for voice calls to other operators
Interconnect usage charge row: Why Jio decided to end free outgoing calls to non-Jio networks

Opinion | IUC is a subsidy for those resisting progress

Implications

Though there is no direct benefit to Bharti Airtel and Vodafone-Idea from this move -- they would continue to get the same IUC from RJio -- the decision, however, augurs well for the entire industry, which has suffered due to lower Average Revenue Per User (ARPU). This would lead to acceptance of higher tariffs by the customers, thereby giving some pricing power to the service providers to inch up tariffs.

RJio, specifically, would be able to see improvement in its operating margin, post the decision.

For more research articles, visit our Moneycontrol Research page.

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 9, 2019 09:03 pm
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