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‘Interconnect charges for wireless calls should be reviewed & scrapped’: RCOM CEO

Reliance Communications’ CEO Gurdeep Singh said during a recent analyst call that the current interconnect usage charge (IUC) of 0.14 paise per minute for wireless-to-wireless calls “should be reviewed and scrapped by the government.”  As per current regulations, RCOM will have to pay 0.14 paise per minute to Airtel, every time an RCOM user makes a call to another user on the Airtel network. But since telcos have started providing cheaper or even free calls, RCOM expects a rise in voice usage, leading to more IUC payouts to other telcos, and not necessarily the same amount of return.

Singh also pointed out that the telecom industry has shifted from being a tariff-based business to “a capacity and a volume-led play” wherein “the pricing structure is getting transferred from per minute or a per MB to ARPU-led structure,” he added. According to him, ARPU-led plans being offered by RCOM like the Rs 149 pack with unlimited calling and 300MB data is “aimed at consumers who have large voice needs and have a smaller data requirement”. Singh added that around 50% of the consumers fall under this bracket since they generate an ARPU of Rs 150 monthly. He expects these plans to profitable “at the current IUC level” but at a lower margin of return.

Why RCOM shut down its profitable CDMA segment

The company’s suffered a net loss of Rs 531 crore during Q3FY17, compared to a profit of Rs 38.8 crore in the preceding quarter. Singh said that a significant part of the decline in profits was due to RCOM’s CDMA shutdown as it migrates to become a 4G-only operator. Though, he pointed out that “this (CDMA to 4G migration) was in line with our asset-light strategy to become a pan-India 4G LTE operator by freeing up 800 megahertz band spectrum of 4G LTE operation, enabling RCOM to execute sharing deals with Reliance Jio.”

Singh considers that a 4G-only strategy will help RCOM place itself in a better competitive standpoint. “If the impact of CDMA business shutdown and spectrum liberalization is taken as a one-time cost, then RCOM has performed better than the peers and we are strategically well prepared to meet the future with our 850 megahertz 4G LTE spectrum.” ‘

Note that RCOM’s CDMA segment was a profitable service, which was completely shut in the previous quarter (Q2FY17). The company lost 3.1 million Internet subscribers in Q3FY17 and another 3.8 million Internet users in Q2FY17 after the CDMA shutdown.

Impact of demonetization

Singh said that the recent demonization drive “has resulted in a short-term adverse impact on all operators by affecting the recharge behavior during the quarter,” although he didn’t expand on the severity of the impact. Rival operator Airtel said that demonetization had an immediate impact that lasted for few weeks. “But like we saw in some of our other businesses, like DTH, that recovery was reasonably quick. There was some postponement of purchases, but it was quite quick,” Airtel’s MD & CEO Gopal Mittal mentioned in a recent analyst call.

“Operators with scale only will be able to survive”

Speaking of the rising competition in the telecom sector, Singh said that after FY2017, the entire telecom industry would go through consolidation phase wherein only operators with scale (or maximum network presence) will be able to survive. “CY2017 and beyond, we believe, will be the years when the entire telecom industry consolidates into circa large five pan-India scale operators,” he added. RCOM has already announced a wireless business merger deal worth Rs 65,000 crore with Aircel, and it is also in the process of merging MTS’ user base with itself.

 Download: Transcript 

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