Airtel, Idea, Vodafone to bear brunt of cut in international call termination charges

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New Delhi: The Telecom Regulatory Authority of India’s (Trai) decision to reduce the international call termination charge from 53 paise a minute to 30 paise a minute will crimp the earnings of Bharti Airtel Ltd, Idea Cellular Ltd and Vodafone India Ltd, analysts said.

The move will also impact newcomer Reliance Jio Infocomm Ltd, which was advocating a cut.

The latest move by the telecom regulator is expected to result in an annualized Ebitda hit of Rs500 crore to Bharti Airtel and Rs620 crore to the proposed combined entity of Idea Cellular and Vodafone India, a report by Kotak Institutional Equities dated 15 January said.

Ebitda—or earnings before interest, tax, depreciation and amortization—is a measure of operating profitability.

Idea Cellular and Vodafone India, which are currently negotiating a merger to create India’s largest telecom operator, are likely to start operating as a single unit from April, Mint reported on 15 January.

The new international call termination rate will be effective starting 1 February.

The cut in international call termination charge could result in Bharti Airtel’s Ebitda for the January-March quarter falling by Rs84 crore, according to Mintcalculations, based on estimates by Kotak Institutional Equities.

The termination charge is payable by an international long-distance operator to the Indian telecom operator on whose network an overseas call terminates.

Kotak has derived the impact on telcos by pegging the annual international incoming traffic into India at around 75 billion minutes, which implies annualized revenue of roughly Rs4,000 crore for the access providers and a 43% cut in international call termination charge would result in an impact of roughly Rs1,700 crore on industry revenue, of which Bharti Airtel has a 33% share, Vodafone India 23% and Idea Cellular 18%.

“The cut is negative, but will not have a huge impact on the sector as such because the volume of incoming voice traffic is not that much,” an analyst said, requesting anonymity.

“The hit to operators could be even lower than this if you take into account the demand elasticity benefits arising due to the cut,” another analyst said, also on condition of anonymity.

The cut follows a steep reduction in the domestic interconnection usage charge—paid by one operator to another for calls made to the latter’s network—to 6 paise a minute from 14 paise, effective 1 October.

The Cellular Operators’ Association of India (COAI), a lobby group, had sought a hike in the international call termination charge from 53 paise a minute to Rs3.5 a minute. Reliance Jio had pushed for a cut to 6 paise.

“COAI is of the view that the reduction in international termination charge is against national interest, as the country will lose precious foreign exchange,” Rajan S. Mathews, director general of the lobby group, said in a statement on Friday.

The resulting loss to telecom service providers is expected to be approximately Rs2,000 crore annually, and this will also lead to a loss in revenue to the exchequer, from both licence fees and goods and services tax, Mathews said.

COAI also conceded that its member Jio has a divergent view on this issue.

“That Jio was the only major access provider in India to support a cut in international termination charge is interesting to note. We understand that 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,” said the report by Kotak Institutional Equities.

“While this cut makes incumbents weaker and caps their cash flows, it is also negative for Jio. When Jio attains some more market share, this will come haunting them. But it has to get to that market share level so this is the strategy (to weaken incumbents),” said the second analyst cited earlier.

Supporting the cut does not have any direct cost reduction benefit for Jio unlike the domestic interconnect usage charge cut, nor does it gain Jio any customer goodwill, the report by Kotak Institutional Equities said, adding that the cost-benefit equation in front of Jio was causing incumbents immediate hurt at the cost of shrinking a high-profitability source of industry revenue in which Jio would have participated at some point.livemint