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Slashed ITR: Trai’s move to hit incumbent telcos

However, since Jio is a relatively a new operator, its share of international termination market is still low. Jio is the only operator to have welcomed Trai’s move to reduce the ITR from 53 paise a minute to 30 paise a minute.

 ITR, Trai, telcos, Telecom Regulatory Authority of India, international termination rate, Kotak Institutional Equities, KIE, Bharti Airtel, Vodafone India, Idea Cellular, Ebitda
With the Telecom Regulatory Authority of India (Trai) slashing the international termination rate (ITR) by 43% to 30 paise a minute from February 1, telcos stand to lose around Rs 2,000 crore in revenues annually and the maximum brunt would be borne by incumbents like Bharti Airtel, Vodafone India and Idea Cellular. (PTI

With the Telecom Regulatory Authority of India (Trai) slashing the international termination rate (ITR) by 43% to 30 paise a minute from February 1, telcos stand to lose around Rs 2,000 crore in revenues annually and the maximum brunt would be borne by incumbents like Bharti Airtel, Vodafone India and Idea Cellular. According to a Kotak Institutional Equities (KIE) analysis, Bharti’s annual wireless Ebitda would be hit by 2.5-3% and the same would be higher at 4.5-5% on the combined Idea-Vodafone entity. But unlike the case of a cut in domestic termination rate, the incumbents’ loss would not be a gain for Reliance Jio as international termination rates are paid by overseas operators to local ones each time an overseas caller calls an Indian subscriber.

However, since Jio is a relatively a new operator, its share of international termination market is still low. Jio is the only operator to have welcomed Trai’s move to reduce the ITR from 53 paise a minute to 30 paise a minute. “Jio has a minuscule market share of the current international termination market in India; however, this would have changed over time as Jio gained share, we believe. Supporting an ITR cut does not have any direct cost reduction benefit for Jio unlike the domestic MTR cut; nor does it gain Jio any customer goodwill. The cost-benefit equation in front of Jio, hence was causing incumbents immediate hurt at the shrinking a high-profitability source of industry revenues in which Jio would have participated at some point. That Jio chose what is at best a neutral-lose scenario (for Jio) does warrant some rethink on whether a win-win scenario in the Indian wireless place is ever possible,” KIE observed in its report. It said that since ITR is ultimately borne by the international caller and has a bearing on the rate charged to make calls to India from other countries, the cut is really a transfer of value from Indian access service providers to foreign carriers or their customers and, therefore, a minor hit on the country’s forex inflows.

Trai said on January 12 while announcing the cut that the reason for it is to curb the arbitrage for the illegal (grey) route for international calls terminating in India thereby protecting precious forex inflows into the country from international voice traffic termination. “Like other aspects around termination, this is also a subjective matter and we do not necessarily concur with Trai on this aspect. A 43% cut in ITR would need the ‘legal’ international incoming voice traffic to grow by as much as 77% for the equation to become neutral from a forex-inflow standpoint. We are not sure if the traffic carried on the grey routes is as material,” KIE said. According to it, maybe one out of 10 or an even lower proportion of international incoming calls are routed illegally. These ‘grey route’ calls show up as calls from local numbers and are, hence, identifiable.

According to Trai’s international voice termination volumes for the September 2017 quarter, the current annual international incoming traffic into India is estimated at around 75 billion minutes per annum, which means annualised revenues of roughly Rs 4,000 crore for mobile operators. A 43% cut means an impact of roughly Rs 1,700 crore on industry revenues. At 33% share of these revenues for Bharti, 23% for Vodafone and 18% for Idea, KIE has estimated Rs 500-crore annualised Ebitda impact for Bharti and Rs 620-crore for the Idea-Voda combined entity (proforma).

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First published on: 16-01-2018 at 05:49 IST
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