According to the new report by India, the reduction in interconnection usage charges 6 paise per minute would have a 4-5 percent impact on the EBITDA levels of incumbents (Bharti Airtel Limited, Idea Cellular Ltd. and Vodafone India Limited) (based on FY17 reported EBITDA).
On the other hand, this could help Reliance Jio Infocomm Ltd. (RJio) to save Rs 35 billion-40 billion in IUC annually. This added advantage may incentivize RJio to continue with the discounted pricing strategy to increase its subscriber base, the firm said.
The report further said that at present, incumbents are already witnessing margin pressure due to declining industry-level average revenue per user after the launch of RJio in September 2016.
Small telecom companies could marginally benefit, as their costs from calls to other networks would come down. However, they have been losing subscribers since the launch of RJio.
Incumbents have also been on the receiving end with regard to subscribers. In August 2017, Airtel lost subscribers for the first time since August 2016, and Vodafone and Idea lost subscribers for the second consecutive month, the firm further said.
Ind-Ra estimates the impact of the cut on the standalone leverage levels of incumbents at 0.1x-0.3x (when IUC is reduced to 6 paise per minute)
Vodafone Mobile Services Ltd has been rated 'IND AA+'/Negative. Its rating outlook is negative, reflecting near-term pressure in the sector.
Moreover, Ind-Ra has a negative outlook for the telecom sector, indicating expectations of a higher deterioration in the credit profile of telecom companies due to stiff competition posed by RJio, as well as of negative free cash flows due to a double whammy of weak earnings and capex.