MOSL: TELECOM- TRAI cuts IUC to INR0.06/minute-EBITDA impact for Bharti, Idea to be below 5%

​TELECOM: TRAI cuts IUC to INR0.06/minute; EBITDA impact for Bharti, Idea to be below 5%

• ​TRAI has revised interconnect usage charge (IUC) from INR0.14/minute to INR0.06/minute effective October 01, 2017. This will be revised down to zero by January 01, 2020.
  
• The immediate EBITDA impact for Bharti/Idea should be less than 5%. Yet, this is higher than the 1-1.5% revenue/EBITDA impact in 4QFY15, when IUC was reduced by 33% to INR0.14/minute.
  
• RJio’s IUC/subscriber/month should reduce from ~INR85 to ~INR40, implying a reduction of INR60b in RJio’s annual IUC cost to INR45b.
  
• Given that TRAI has not reduced IUC to zero is positive for incumbents. While RJio would be able to reduce (voice only) its feature phone subscribers’ ARPU from INR150 to INR100, this is in line with the incumbents’ ARPU. Had IUC been cut to zero immediately, RJio’s ARPU reduction could have been higher. The ~INR40 IUC/subscriber (variable cost) restricts RJio’s ability to undercut incumbents.
  
• By 2020, we believe 70-75% of all subscribers would be data users, allowing telcos to provide bundled (voice and data) offerings, thus protecting ARPUs.
  

Impact on incumbents’ EBITDA to be less than 5%

• ​Our workings indicate that the cut in IUC to INR0.06/minute could impact Bharti’s revenue by 6-7%. After deducting the IUC outgo, the net EBITDA impact should be less than 5%. For Idea, we expect the impact to be lower, given that it has lower incoming off-net traffic. In 4QFY15, when IUC was reduced to INR0.14/minute from INR0.20/minute, Bharti saw a revenue impact of INR1.4b (~1% of gross revenue) and Idea saw a revenue impact of INR1b (1.5% of gross revenue). The impact on EBITDA was minimal. However, the impact would be 2-5% higher this time, given the launch of RJio and the subsequent IUC receipts from RJio.