Ambani's Jio free model gets boost as India cuts connection fees

[MUMBAI] One year after storming into India's mobile phone market with free data and voice services, billionaire Mukesh Ambani's telecom unit is gaining momentum against its bigger rivals via a regulatory decision to lower interconnection fees.

The reductions that begin on Oct 1 will probably bolster Reliance Jio Infocomm Ltd's earnings by 76 per cent in the year ending March 2019, Morgan Stanley analysts Parag Gupta and Amruta Pabalkar estimate. Jio had to pay 21 billion rupees (S$439 million) in interconnect fees in the quarter ended June 30, according to the Morgan Stanley note dated Sept 20.

Bigger rivals Bharti Airtel Ltd, Vodafone India Ltd and Idea Cellular Ltd have blamed Jio's free services for their own declining growth. Bharti said on Wednesday that the reduction in interconnect fees would benefit only one carrier and add to stress that the industry is facing. Vodafone India Ltd, India's second-largest carrier, said it would weigh its options in response to the change.

Interconnect charges formed 9 per cent to 15 per cent of consolidated revenue for Bharti and Idea, according to estimates by CLSA analysts Deepti Chaturvedi and Akshat Agarwal on Wednesday. The fee reduction could reduce fiscal year 2019 earnings by as much as 7 per cent, they said in a note to clients.

An Idea spokeswoman declined to immediately comment.

Shares of Reliance Industries, which controls Reliance Jio Infocomm Ltd, rose as much as 4 per cent to the highest since the stock started trading in 1991, and were changing hands at 863 rupees at 9.24am in Mumbai. Bharti Airtel plunged as much as 6.3 per cent, and Idea fell 7.6 per cent.

The Telecom Regulatory Authority of India slashed interconnect fees to 0.06 rupees a minute from 0.14 rupees a minute starting Oct 1, according to a statement on the regulator's website on Tuesday night. The regulator said that interconnect fees will go down to zero from Jan 1, 2020.

Jio, which began charging for data on April 1, took another swing at rivals earlier this year by offering a US$23 4G-enabled feature phone with tariff plans as low as 23 rupees for two days or 153 rupees monthly.

BLOOMBERG