iWorld

India Ratings and Research says R-Jio's tariff hike to support industry ARPU

Its ARPU may increase by Rs 9.

https://www.indiantelevision.com/sites/default/files/styles/smartcrop_800x800/public/images/tv-images/2019/10/12/jio.jpg?itok=_QKYRagv

MUMBAI: India Ratings and Research (Fitch Group) believes Reliance Jio Infocomm Ltd’s (R-Jio; ‘IND AAA’/Stable) decision to start charging Rs 0.06/minute through top-up vouchers on outgoing voice calls to other networks would improve its average revenue per user (ARPU) by about Rs 9 and EBITDA by 15 per cent to 18 per cent in FY20, assuming that usage/calling pattern remains the same and the zero interconnect usage charge (IUC) regime is postponed beyond its scheduled date of 1 January 2020. However, the levy of additional charges by R-Jio will discourage users to call other operators from R-Jio, possibly leading to lower voice traffic on R-Jio network and hence could constrain the telecom giant’s actual EBITDA benefit at 8 per cent-10 per cent.

Also, Vodafone Idea Ltd (Voda-Idea; ‘IND A+’/Negative) and Bharti Airtel Ltd (Airtel) may see lower incoming calls on their network, which may impact their net interconnect user charge (IUC) income, which stood at 3 per cent and 10 per cent of total revenue for Airtel and Voda-Idea, respectively. Furthermore, Voda-Idea and Airtel may continue to lose their subscribers to R-Jio as the pricing arbitrage (i.e. outgoing voice calls to other network being free on R-Jio and chargeable for other operators) is removed. On the flipside, R-Jio’s tariff-hike may give Voda-Idea and Airtel an opportunity to increase their tariffs and repair their balance sheets. However, Ind-Ra believes the benefits for Voda-Idea and Airtel would be short-term and the marginal recovery of around 10 per cent in ARPU may not help in addressing the unsustainable debt levels, and improve credit metrics. Ind-Ra has maintained a negative outlook on the Indian telecom sector due to intense competition, elevated debt levels and continued reliance on capital infusion for debt servicing and capex.

Network Imbalance Higher for R-Jio: In Q1FY20, outgoing calls as a proportion of total offnet minutes of usage (MoU) for R-Jio, Voda-Idea and Airtel stood at 64 per cent, 41 per cent and 45 per cent, respectively. Also, of the total offnet voice traffic, net incoming MoU as a proportion of total offnet MoU stands at negative 29 per cent for R-Jio whereas the same is 9 per cent and 19 per cent for Airtel and Voda-Idea respectively, implying that network voice traffic imbalance is significantly higher for R-Jio compared with peers. Hence, R-Jio remains a net-payer of IUC expenses, whereas Voda-Idea and Airtel are net-receivers of IUC receipts. The move by R-Jio to start recovering IUC from customers would address R-Jio’s concerns that the zero IUC regime may get postponed by Telecom Regulatory Authority of India beyond its scheduled date of 1 January 2020.

Eventual Benefit Contingent on Many Variables: Estimating the impact of R-Jio’s levy of IUC charges on ARPU and EBITDA is tricky given that it may lead to a change in usage and calling pattern. The impact on Airtel and Voda-Idea’s financials is yet to be seen given that they have not yet announced their strategy in response to R-Jio’s move.

Broader Impact on Industry Tariffs: R-Jio’s tariffs have been 25 per cent-30 per cent lower than those of Voda-Idea and Airtel since the last two years, which has kept the competition intensity high. However, after falling steadily over the last 2.5 years, data tariffs (expressed in terms of GB per user per month) rose 11 per cent-17 per cent during October 2018-February 2019, and have been stable since then. Ind-Ra believes the industry-wide debt levels are at unsustainable levels and a marginal recovery of 10 per cent in ARPU may not help in improving the credit metrics. Telcos will continue to rely on external funding to support their debt servicing and elevated capex requirements. Any investment in spectrum acquisition or 5G technology may derail this fragile recovery. 

Estimation of Impact on IUC Changes

 

Bharti Airtel

Voda-Idea

R-Jio

MoU (million minutes, total offnet and onnet)

737,108

676,259

785,970

Outgoing calls ( per cent of offnet MoU)

45

41

64

Incoming calls ( per cent of offnet MoU)

55

59

36

Net incoming MoU ( per cent of offnet MoU)

9

19

-29

Access charges - Net reporteda (INR million)

2,500

3,800

-8,510

Offnet MoU as  per cent of total MoU

60.1

50.4

63.3

EBITDA (1QFY20, INR million)b

84,926

36,500

46,700

IUC charges (as  per cent of EBITDA)

3

10

-18

a Access Charge data for Airtel taken from Bloomberg.
b EBITDA for Voda-Idea not adjusted for AS-116 benefit of INR22.2 billion.
Source: Ind-Ra, Company and Bloomberg

Latest Reads

https://www.indiantelevision.com/sites/default/files/styles/340x340/public/images/tv-images/2020/10/19/tring.jpg?itok=ZEWy5HC5
ALTBalaji acquires 17.5 per cent stake in Tring

KOLKATA: ALTBalaji has acquired 17.5 per cent stake in the online celebrity digital engagement platform, Tring. With this investment, Tring’s valuation rose to about Rs 100 crore in the short period since its inception earlier this year. The celebrity shout-out and engagement platform was started...

iWorld Over The Top Services
https://www.indiantelevision.com/sites/default/files/styles/340x340/public/images/tv-images/2020/10/19/voot.jpg?itok=Extcfv46
Voot strengthens content portfolio with Shemaro’s linear channels

KOLKATA: Voot has announced a strategic partnership with India’s leading content powerhouse Shemaroo Entertainment Ltd. to provide its live linear channels Shemaroo TV and Shemaroo MarathiBana to the millions of users of the platform.

iWorld Over The Top Services
https://www.indiantelevision.com/sites/default/files/styles/340x340/public/images/tv-images/2020/10/19/game.jpg?itok=eOAgafnb
GEMS 2020: Indie game developers continue to rise and shine!

When compared to the gaming scene in the U.S. and Europe, India's indie game development space is taking baby steps. But indie creators are making headway and getting noticed.

iWorld Gaming
https://www.indiantelevision.com/sites/default/files/styles/340x340/public/images/tv-images/2020/10/16/tran.jpg?itok=lnZyw92K
CapeTitans Games on bridging the gaps in game creation

The online gaming ecosystem is evolving rapidly in India. While many aspirant game developers are trying to make their mark on the industry, there is a gap when it comes to conceptualizing a game on the drawing board and selling it in the market. CapeTitans Games is trying to bridge that schism.

iWorld Gaming
https://www.indiantelevision.com/sites/default/files/styles/340x340/public/images/tv-images/2020/10/15/ott.jpg?itok=N3QsmKbU
SC seeks Centre’s response on regulating OTT platforms

KOLKATA: It seems that when it comes to self-regulation, OTTs have a tough long road ahead, as the supreme court has sought the centre's response on a public interest litigation (PIL) for regulating these platforms by an autonomous body.

iWorld Over The Top Services
https://www.indiantelevision.com/sites/default/files/styles/340x340/public/images/tv-images/2020/10/15/voot.jpg?itok=wsfAFtti
Catch the latest episodes of the new socially-distanced Shark Tank – Season 12 in India on the same day as the US, exclusively on Voot Select

“The road to riches is never straight and narrow. It can be riddled with financial land mines.”

iWorld Over The Top Services
https://www.indiantelevision.com/sites/default/files/styles/340x340/public/images/tv-images/2020/10/15/st.jpg?itok=1D_kWUNF
GEMS: Psyche of Indian gamer

With a spurt in consumption during the lockdown, gaming is projected to only grow further. Although the gamers are majorly young and male till now, the users are gradually emerging across demographics.

iWorld Gaming
https://www.indiantelevision.com/sites/default/files/styles/340x340/public/images/tv-images/2020/10/14/gaming.jpg?itok=p_4Dmk9U
GEMS2020: Gaming & e-sports making its way into the mainstream

Thanks to the 4G mobile data boom, the cult of e-sports and gaming is going mainstream. The Indian online gaming industry is growing at an exponential rate year upon year, and is expected to be worth $1.1 billion by 2021.

iWorld Gaming
https://www.indiantelevision.com/sites/default/files/styles/340x340/public/images/tv-images/2020/10/13/bbb.jpg?itok=0vzL5wGN
Indian broadband subscribers growth down in July 2020

BENGALURU: Indian broadband internet subscribers growth for the month ended 31 July 2020 (Jul-20) was less than half (49.6 per cent) of the growth in Jun-20 as per the latest Telecom Regulatory Authority of India (TRAI) data. The broadband subscriber base grew by just 71.7 lakh in Jul-20 as...

iWorld Broadband

Sign up for our Newsletter

subscribe for latest stories

* indicates required