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TRAI deferring zero-IUC regime to hit Voda Idea & Airtel, benefit Jio: Analysts

Mukesh Ambani-led Reliance Jio now stands to pocket as much as Rs 1,600 crore in interconnect fees from the two older carriers over the next one year, having become a net IUC recipient in the October-December period, analysts said.

, ET Bureau|
Last Updated: Jan 21, 2020, 07.30 AM IST
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Vodafone Idea and Airtel could report lower operating income in the December quarter itself with Jio now a net IUC-earner as opposed to a net-payer till the fiscal second quarter.
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KOLKATA: The sector regulator’s recent decision to defer implementation of the zero-interconnect usage charges (IUC) regime appears to have boomeranged on Vodafone Idea and Bharti Airtel, say analysts.

Mukesh Ambani-led Reliance Jio now stands to pocket as much as Rs 1,600 crore in interconnect fees from the two older carriers over the next one year, having become a net IUC recipient in the October-December period, analysts said.

Vodafone Idea and Airtel, they said, could report lower operating income in the December quarter itself with Jio now a net IUC-earner as opposed to a net-payer till the fiscal second quarter.

IIFL Securities estimates “Jio could earn Rs 1,600 crore in net IUC receipts over the next four quarters,” a scenario that “could have adverse financial implications for Airtel and Vodafone Idea,” especially if the Telecom Regulatory Authority of India (Trai) extends the IUC regime beyond December 2020.

The brokerage said “Jio’s net interconnect receipts could continue to rise until Trai eliminates the IUC regime”.
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Ironically, Vodafone Idea and Airtel had urged Trai to defer the zero-IUC regime, since they were net interconnect revenue earners even till the last quarter. Jio, which was then a net payer, had opposed any deferral. But now the situation has changed with Jio also the voice minutes market leader, said analysts.

Trai recently deferred implementing a zero-IUC regime to January 2021 from the earlier January 2020 deadline.

IIFL estimates “Jio’s net IUC costs have fallen sharply in the December quarter to Rs 260 crore from Rs 650 crore in July-September period,” which would lead to “Airtel and Vodafone Idea seeing lower Ebitda” in the fiscal third quarter.

At present, IUC is paid by the call-originating telco to the destination carrier.

Vodafone Idea and Airtel will report December quarter earnings numbers next month, though the dates are not yet finalised. Both incumbent operators have been net IUC-earners till the fiscal second quarter, and revenues on this score have contributed to their Ebitda or operating income over the years.

In 2QFY20, IUC Ebitda had accounted for 28%/3% of Vodafone Idea’s/Bharti Airtel’s consolidated Ebitda respectively, IIFL Securities had said in a separate note recently.

Fresh stress on the IUC score could further compound the financial pains of Vodafone Idea and Airtel, who are already staring at huge payouts after they got no relief from Supreme Court on their massive adjusted gross revenue (AGR) dues.

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