India's telecom war could end super-cheap tariff structure soon

The recent all-in-one tariff plans announced by Mukesh Ambani-controlled Reliance Jio has started a fresh debate on telecom tariffs. Jio, which started operations over three years ago with hyper-competitive tariffs, has introduced new plans bundling 1,000 minutes of outgoing calls on mobile networks of other operators along with daily data allowance (2 gigabytes per day), unlimited Jio-to-Jio voice calls, and unlimited SMS (100 per day). The new plans start at Rs 222 (for 28-day validity) and go up to Rs 444 (for 84-day validity).

This is an 11 per cent jump over the earlier tariff (Rs 399) offered by Jio with 84-day validity. The idea to introduce all-in-one plans was to minimize confusion for consumers. A few days ago, Jio asked its 348-million subscribers to do top-up recharge on existing packs if they have to make calls to subscribers of Airtel, Vodafone Idea and BSNL. There are a couple of top-up plans available - each having varied minutes of usage. Jio started charging 6 paise per minute for Jio-to-non-Jio voice calls - that required the top-up recharges - after telecom regulator TRAI (Telecom Regulatory Authority of India) asked for recommendations to continue with IUC (interconnect usage charges) post January 1 next year.

IUC charges are paid between operators for facilitating calls on their networks. In a calling-party-pays regime, the networks from which calls originate pay 6 paise to the called network. Prior to September 2017, these charges were 14 paise per minute. Jio was bearing these charges for three years before it decided to pass on the burden to users. "It seems that 6 paise per minute charging has not gone well with customers - either in the form of negative publicity or word of mouth of being typical Reliance and no-life time free calling," says an analyst.

Whether it's top-up or the all-in-one plans, Jio's moves mark the end of super-cheap tariff structure that is being followed by telcos. Even if the tariff increase is marginal, it shows that the even an aggressive player like Jio, which is practically dictating the tariffs in the sector, cannot sustain low tariffs for a long period.

So far, incumbents have not responded with a similar hike in tariffs but it's expected that they will follow suit - sooner or later - because of their own distressed financial situation. Airtel, for instance, posted net losses of Rs 2,392.2 crore in the quarter ended June 2019. Vodafone Idea recorded net loss of Rs 4,873.9 crore in the same quarter.

"It becomes easier for them [incumbents] to respond to Jio, especially since there is no IUC complication. We are a step closer to an industry-wide price hike," G.V. Giri, head of research at IIFL Institutional Equities said in an October 22 report.

Analysts at Credit Suisse said that the incumbents may raise some tariff by giving more data or value added services once TRAI provides clarity on IUC charges. TRAI has recently closed the consultation on the review of IUC charges in which 61 parties have commented. While Airtel has asked for 3-year extension of IUC charges; Vodafone is also asking for extension. TRAI is expected to come out with its recommendations on the matter shortly.

"We do not think Jio will raise more mobile tariffs over the next 12-15 months as it is still below its market share objective. The company again stressed on its subscriber objective of 500 million subs during the second quarter 2019/20 result briefing of Reliance Industries," the Credit Suisse report said.

Analysts and market experts have been predicting tariff hike for a long time but nobody expected that a possible continuation of IUC charges would trigger it. The tariff increase is going to be positive for incumbents - even if it's just marginal - who had to suffer huge losses after Jio's disruptive entry that brought down the tariffs to low levels.

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