Jio’s IUC is likely to help telcos increase tariffs

After announcing that subscribers will have to get additional topup recharges to make off-net calls to compensate for interconnect usage charges (IUC) paid by the operator, Reliance Jio has launched plans that come bundled with I UC usage.

Analysts largely see this as a positive for the sector, saying it will allow Bharti Airtel and Vodafone Idea to increase their rates as well.

“We think all-in-one plans ease some of these concerns (on the older majors’ operational issues), by bundling 1,000 IUC minutes. Also, the new plans provide relief to the price hike (brought by IUC fees) in one of Jio’s most popular plan, the ~399 (1.5Gb/day, validity 84 days) one,” wrote Varun Ahuja, research analyst at Credit Suisse.

The brokerage notes Jio’s new plan (~444 with 84 days validity) is almost 7 per cent lower than the potential rate after factoring in the IUC fee (~479, with 84 days validity). The ~399 + ~80 for 1,000 IUC minutes (in line with the current rate pattern) is only a 11 per cent price hike (over the pre-iuc period) versus an estimated 20 per cent potential price hike without the all inone plans.

However, for the 28 days validity plan, the new one (~222) is 49 per cent more expensive than the current one of ~149. It does not look like this plan is likely to see a lot of traction, as customers can get an additional 315 minutes of off-net calls (based on current traffic) by paying ~25, without the need to pay an additional ~73 for 1,000 offnet minutes.

Note that the new plans provide daily data allowance of 2 GB a day as compared to the current popular plans at 1.5 GB daily.

Under the new plan, Jio customers will not have to buy IUC top-up vouchers for making voice calls to other operators. The new ones come with 2 GB free daily data, along with free unlimited Jio-jio voice calls and 1,000 minutes of voice calling to all non-jio numbers.

From October 10 onward, Jio started charging customers six paise a minute for making calls to any non-jio mobile number.

It comes after Jio had taken the bulk of market share. The additional charge was introduced soon after the Telecom Regulatory Authority of India (Trai) moved to reopen the deadline for ending charges for terminating calls on rival networks beyond the earlier deadline of January 2020.

“With this move, we see limited space for further price hikes and this also lowers IUC gains. Jio could instead have taken a clean price hike, as it has become the market leader. The move to charge for IUC with a sunset clause indicates its sustained focus on subscribers and that tariff (rate) increase is not a nearterm focus. Indeed, this move encourages voice-only subscribers to move to Jio’s network,” says Piyush Nahar, research analyst, Jefferies.

Jio has alleged that Trai’s review of the call connect charges “sabotages” the government’s Digital India initiative. And, that it will hit not only the regulator's credibility but also investor confidence, as the move protects vested interests of the earlier operators. “Jio’s plan to recover IUC from subscribers provides an opportunity for the (older) incumbent operators to differentiate their offerings and gain smartphone subscriber addition. This might prompt the others to take a price hike in the near future. That said, after charging for IUC, Jio might not immediately raise its tariff,” says Pranav Kshatriya, research analyst at Edelweiss.