Telecom stocks rally after Jio hikes call tariffs

Inside Reliance Jio's audacious plan to disrupt India's internet landscape

For example, for a recharge of Rs 10, a Jio customer will get 124 IUC minutes and 1GB of free data entitlement.

Earlier, Reliance Jio said that it had paid almost Rs 13,500 crore as NET IUC charges to the other operators in the last three years. This charge is called Interconnect Usage Charge (or IUC) and had been subsidized by Jio for its valuable customers. A minimum balance will have to be maintained along with the regular package that has to be subscribed to if users wish to continue calls to non-Jio users.

This will be the first time that Jio users will pay for voice calls.

The move "seems like a big deal, insofar as the market has been waiting for Jio to move from a land grabber to focusing on profitable growth", Chris Lane, an analyst at Sanford C. Bernstein said in a note. Since it did not charge its customers for voice calls, the company had to bear this entire expense. If a subscriber requires more minutes than what's available through the Rs. 10 IUC top-up voucher, there is the Rs. 20 voucher with 249 minutes. The company claimed that it had been forced to impose the IUC charge on outgoing off-net mobile calls as operators are required to pay IUC for off-net calls on their networks.

The subscribers of Reliance Jio will now have to pay for voice calls made to subscribers of Airtel, Vodafone and BSNL, thanks to regulatory uncertainty created by the Telecom Regulatory Authority of India (TRAI).

Postpaid users will be directly billed 6 paise per minute with additional data similar to that offered to prepaid users.

Shares of Bharti Airtel and Vodafone Idea Ltd ended 5-6% higher while Reliance Industries Ltd (RIL) was up almost 3% on Thursday. The IUC is determined based on the cost per call and given the massive 2G customer base in India, the 6 paise cost is already significantly below the real cost of completing the call, it said.

However, Jio-to-Jio calls, incoming calls, Jio to landline calls and calls made through online apps such as WhatsApp of FaceTime will continue to be free.

Jio's decision to charge its customers comes after the TRAI floated a consultation paper to extend the deadline - to make IUC charges zero - from January 1, 2020, citing traffic asymmetry.

Now, that we have clarified the concept around IUC and how Jio is now going to charge users to offset the losses, well, let's take a look at top-up vouchers it's offering users. "We will share all data with TRAI to convince that zero IUC regime is in the best interest of consumers and how the huge number of missed calls is creating the wrong perception of asymmetric traffic", it said. In a shock announcement late yesterday, Reliance Jio announced that Jio users will be charged Rs. 0.06 per minute for calls to non-Jio mobile numbers.