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Nachiket Kelkar
Nachiket Kelkar

TELECOM

TRAI's decision to cut ITC rates may hurt Airtel, Idea, Vodafone

telecom-tower-reuters [File] Representative image | REUTERS

The Telecom Regulatory Authority of India's decision to slash the international incoming call termination charges (ITC) by 43 per cent will hit the incumbent operators like Bharti Airtel, Vodafone and Idea Cellular harder, with the industry's revenues likely to take a hit of Rs 2,000 crore, say analysts.

TRAI had on Friday slashed ITCs to 30 paise from 53 paise, effective from February 1, 2018. This was in contrast to Cellular Operator Association of India's demand to hike ITCs.

ITC is payable by an international long-distance operator, which carries a call from outside the country to the access provider in the country on whose network the call terminates.

There were two sides to the argument. Supporters of the hike had said there was a case for increasing the charges to about Rs 3.00-3.50 per minute over the next couple of years to bring it on par with the charges paid by Indian long distance operators to the foreign carriers. On the other hand, those who wanted a cut had argued that ILD traffic had started declining due to competition from OTT (over the top) and VoIP (voice over internet protocol) services.

TRAI has said it decided to cut ITC to curb the arbitrage for the illegal route for international calls terminating in India.

“Owing to the twin facts – menace of grey route poses serious security threat to the country apart from causing significant leakage in the revenue accruable to the country and its telecom service providers, and proliferation of OTT route for carrying the international voice traffic has many non-cost factors – the Authority is of the view that, while deciding on the appropriate level of ITC in the country, curbing the menace of grey route should be a more important regulatory priority than facilitating the shift of the international incoming traffic from OTT route to carrier route,” TRAI said.

Rohit Chordia, analyst at Kotak Institutional Equities, feels that TRAI has landed another “blow” to incumbents by cutting the ITC. He expects Bharti Airtel's India wireless EBITDA (earnings before interest, taxes, depreciation and amortization) to be impacted by 2.5-3.0 per cent on an annualised basis, while the pro-forma EBITDA of Vodafone-Idea Cellular combined is likely to be hit by 4.5-5.0 per cent.

“We estimate the current annual international incoming traffic into India at around 75 billion minutes per annum; this implies annualised revenues of roughly Rs 40 billion (Rs 4,000 crore) for the access providers; a 43 per cent cut is essentially an impact of roughly Rs 17 billion (Rs 1,700 crore) on industry revenues. At 33 per cent share of these revenues for Bharti, 23 per cent for Vodafone and 18 per cent for Idea, we estimate Rs 5 billion (Rs 500 crore) annualised EBITDA impact for Bharti and Rs 6.2 billion (Rs 620 crore) for the Idea-Vodafone combined entity (pro-forma),” said Chordia.

COAI director general Rajan Mathews has also termed the move as a “body blow to an already stressed industry” and wants the regulation reviewed.

“The reduction does not benefit any customer and will only benefit foreign carriers at the expense of the domestic industry,” he said.

Kotak's Chordia added that the newest entrant in India's telecom market – Reliance Jio – was also unlikely to benefit from the cut in ITC.

“We understand that Jio has a miniscule market share of the current international termination market in India; however, this would have changed over time as Jio gained share. Supporting a cut does not have any direct cost reduction benefit for Jio; nor does it gain Jio any customer goodwill,” he added.

Over the last two trading sessions, shares of Bharti Airtel have declined 2.50 per cent, while Idea's stock is down 5.50 per cent.

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Topics : #TRAI | #Telecom | #Airtel | #Idea | #Vodafone

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