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Trai order gives Reliance Jio more firepower, can put more fight in it
NEW DELHI: Reliance Jio, the newcomer that shook up the telecom sector with lower tariffs and cheap phones, can launch yet another wave of disruption riding on a favourable order by telecom regulator.
After storming into the market on big freebies and then introducing an almost-free Jio Phone, Reliance Jio is again well-positioned to create more disruption in the sector as the order by Telecom Regulatory Authority of India (TRAI) will leave it with piles of cash while hitting finances of its rivals.
TRAI has more than halved the interconnect usage charge (IUC) to 6 paise a minute from the current 14 paise and said it would be brought down to zero paise from 2020.
IUC is payable by a service provider whose subscriber originates the call, to the service provider in whose network the call terminates. Under this arrangement incumbents gain as most calls terminate on their networks since they have larger share of subscribers. The newcomer loses as it has fewer subscribers. They make most calls to numbers of incumbent companies.
Scrapping of interconnect charges would directly benefit Jio as it would reduce its IUC payout, given that it has more outgoing calls made to subscribers of larger operators such as Airtel, Vodafone India or Idea.
The industry leader Bharti Airtel might lose around Rs 2,000 crore a year from the lower IUC. For Vodafone India and Idea Cellular, ranked second and third, the annual loss would be around Rs 1,500 crore and Rs 1,200 crore, respectively. However, Jio is set to save Rs 5,000 crore, while RCom and Aircel will benefit by a marginal Rs 250 crore each. Bharti Airtel, Vodafone India and Idea Cellular are likely to challenge the TRAI order in court.
The Rs 5,000 crore that Jio will save can fuel aggressive pricing when the incumbents, hit by the TRAI order, will be in no position to fight a price war. Competitive prices will become a big drag on them and hit their profitability badly.
Jio’s stormy entry into $26 billion Indian telecom market riding on big freebies last year changed rules of the game. The almost-free JioPhone is another disruptor which can get Jio a huge number of new subscribers. If it slahes prices on top of it, it can be well on its path to topple the biggies.
After a speedy start, Jio has seen a slowdown in the pace of its customer acquisition, mainly due to the limited number of affordable 4G handsets in the market. But JioPhone can help the new operator target millions of 2G featurephone users who have been wary of shifting to smartphones due to the affordability factor and lack of use case. JioPhone, a 4G feature phone which will be available at an effective cost of Rs 0, can rattle the existing players who can lose a big chunk of their low-end voice customers. It will hit low-end handset makers as well.
Now with Rs 5,000 crore windfall from the TRAI order, Jio will get even more ambitious and aggressive.