New Delhi: Reliance Jio's decision to charge 6 paise per minute for voice calls made by its users to mobile phones networks of rival operators is positive for the sector, despite lingering uncertainties on how the telecom regulator and the company's rivals will respond, according to UBS.
On Wednesday, billionaire Mukesh Ambani's Reliance Jio flagged the regulatory uncertainty over review of sunset clause for call termination charges, and announced it will charge customers 6 paise per minute for voice calls made to rival phone networks, but will compensate users by giving free data of equal value.
Jio had said the 6 paise charge will remain in place till the time telecom operators are required to pay rivals for mobile phone calls made by their users to other operators' network.
"While there are several uncertainties that arise, overall we see this as a positive development for the sector, with potential revenue and Ebitda (earnings before interest, tax, depreciation and amortisation) upside of 10-12 per cent and 35-45 per cent assuming traffic patterns of first quarter since this move will result in higher outgo from the customer," UBS said in its report.
Uncertainties are in the form of how the regulator responds, how Bharti and Vodafone Idea respond, and how customer usage patterns change, it noted.
There is also the possibility of the regulator aborting any decision to postpone zero IUC (interconnect usage charge) and implement the original plan, it added.
"It also remains to be seen whether Bharti and Vodafone Idea Ltd follow Jio in introducing similar charges for off net calls, although we see high chance they follow Jio," UBS said.
However, CLSA said Bharti Airtel and Vodafone Idea will likely keep tariffs unchanged and focus more on gaining 4G subscribers.
CLSA said Jio's move is likely to "pressure" the Telecom Regulatory Authority of India (Trai) to abolish call connect charges (also called interconnect usage charges) by January 1, 2020. "If Trai defers IUC elimination, then Jio's move could help boost its Ebitda by 40 per cent but it will likely also make incumbents' tariffs more competitive," it said.
IUC charges will likely reduce Reliance Jio's discount versus peers, which in turn could affect the company's subscriber additions, CLSA said. Narrowing tariff differentials is a positive for incumbent operators, it added.
Kotak Institutional Equities said it finds Jio's decision "quite puzzling".
"Having paid 'IUC from its own resources while offering free voice to its customers', per the press release, for nearly three years now, we are not sure why Jio could not have waited another couple of months for the final outcome (a new tariff order reversing the enacted regulation or no new tariff order) of the ongoing consultation," Kotak said.
"The other aspect we find equally puzzling is the mode chosen to recover the off-out IUC instance. It is in the form of IUC top-up vouchers... In effect, Jio is making an additional recharge compulsory for off-out calling," it said.
This diluted the 'simplicity' proposition of Jio's pricing architecture, one of the most critical changes Jio brought to the industry, said Kotak.
The report said the value of the additional data allowance Jio is offering with these top-up vouchers is "immaterial" from a subscriber perspective. "Most subscribers are going to view the compulsory IUC top-up voucher as an additional spend for no incremental value," it said.