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MOSL: TELECOM-TRAI defers zero MTC regime; floats consultation paper on tariff

Telecom: TRAI defers zero MTC regime; floats consultation paper on tariff

 

• The Telecom Regulatory Authority of India (TRAI) has made key announcements on (a) termination charge and (b) consultation paper on tariff fixation.
• Following a two-month consultation process, the regulator has announced deferment of zero termination charge – bill and keep (BAK) regime – by one year to Jan’21.
• The TRAI cited slower-than-expected migration on 4G and the prevailing traffic asymmetry against VoLTE, but also the possibility of an improvement in this imbalance over the next one year.
• Bharti/VIL have net MTC gain of ~INR2.5b/3.5b and thus stand to gain ~2%/10% on FY21 EBITDA. On the other hand, RJio might see a 4% negative impact on EBITDA. However, this will be limited to FY21.
• The TRAI also floated a consultation paper on fixing a floor price for tariffs. However, the narrative gives limited confidence toward changing its current forbearance policy and any regulatory intervention. Further, this may create a price ceiling which could be counterproductive.
• The regulator has highlighted the benefits of forbearance offering freedom and flexibility to TSPs and also discussed the difficulties in setting up a floor price (such as the difference in each telco’s cost of delivery, technology, service offerings and methodology to determine a floor).
• Post the recent price increase, Bharti should be able to garner a healthy 7% FCF yield. Recent fund raising plans by Bharti would address AGR liability along with ~5% equity dilution. VIL may continue facing market share loss and insufficient FCF to manage operations. RJio’s should turn FCF positive post the price increase.