India Ratings and Research has calculated that TRAI’s recent slashing of India’s interconnect charges will result in a 4%-5% reduction in EBITDA for the country’s top three operators.
Bharti Airtel, Vodafone India and Idea Cellular have all expressed outrage at the Telecom Regulatory Authority of India’s decision to cut the termination fee by over 50% - and it seems their ire is not misplaced, as the decision could also enable their newest rival Reliance Jio to save as much as INR40 billion ($625 million) a year. This could allow the newcomer to slash its tariffs even further.
TRAI revealed last week that it would cut the mobile-to-mobile interconnect usage charge from 1st October, reducing the current rate of INR0.14 to INR0.06, and abolishing the fee altogether from 1st January 2020. IR&R reckons that the elimination of the fee will result in the EBITDA of the Big Three dropping by as much as 7%-9%.
Jio caused massive disruption upon entering the market in September 2016 by offering free voice and data on its nationwide 4G network. The incumbent operators saw their profits drop massively, with Bharti Airtel registering a 75% year-on-year drop in its fiscal Q1 net income.
India’s established operators aren’t the only ones discontented with TRAI’s decision. The regulator’s former chairman Rahul Khullar described the abolition of the interconnect charges as “quite simply, appalling. It appears to be based on a pipedream that some people are trying to sell that data will drive the bulk of telco revenues in India in all of two years. Have you seen the state of our telecom infrastructure, private and public? Do you seriously believe next generation networks are around the corner? [The] truth is that voice still accounts for nearly 80% of telco revenues, and I don’t see the share of data revenues even exceeding 35% of total telco revenues in the next two years.”
India’s three biggest operators are mounting a legal challenge against TRAI’s decision.