IUC Reduction May Make 2018 a Difficult Year For Telecom Industry

IUC Reduction May Make 2018 a Difficult Year For Telecom Industry

If you have been aware about the recent move by TRAI to make the IUC (inter usage charges) lower, here are some possibilities I think would be there for Telecom sector in the coming year. I have been part of the Telecom Sector for 9 years and corporate strategy has been my cup of tea.

Telecom Sector Last Few Years

Where to begin, the Telecom sector is already going through a very rough phase, not because of GST (which has made many small business owners cry in last few months), but for many other reasons.

The business has become difficult and profit margins are dwindling. Firstly, Telecom business is a very capital intensive business and requires lots of investment in towers and infrastructure, spectrum purchase and running large scale pan India operations.

Telecom sector was plagued with the 2G auction scam which lead to exit of many players like MTS, the Russian company if you can recall. There were several other who are just either at the brink of closure or are closed like Tata Teleservices (Tata Docomo)or Aircel.

Tata Docomo once shook the industry with launch of 1p/sec tariff but now is just working to make the ends meet, as there is no buyer for the company and Docomo (the Japanese partner), wants to just sell off the investment.

Aircel used to be the market leader in Chennai and Tamil Nadu and was strong in some other circles but now is merged with Reliance communication, a desperate move.

Videocon and Uninor once were doing good but are no longer considered to be anywhere in the industry. So majority of companies invested huge amount of money in telecom and burned their hands because of several reasons.

Current Scenario and Upcoming Idea – Voda Merger, JIO Effect

Now we are left with 4 major players – Airtel, Vodafone, JIO, Idea and BSNL if you wish to count them.

While JIO has been great for consumers and for Mr Ambani, it has not been so kind for other telecom operators.

Telecom companies have to pay 1000s of crores for purchasing spectrum in different circles and also invest thousands of crores in network expansion and upkeep.

Companies like Airtel, Idea and Vodafone were already struggling with the investments they made to purchase the 4G spectrum and equipment when JIO came last year.

The new price war started and the companies have to reduce the prices to a fraction of what they used to be. Yes the data prices were exorbitant and these companies should have thought of reducing them, but they were also busy in making money at the time.

With Free JIO Voice calling and unlimited data (1 GB /day) Indian telecom pricing become the cheapest in the world.

Facebook and YouTube revenues have soured since the JIO phenomena. But on the other hand it has pushed Airtel, Idea and Vodafone in a very difficult position.

The Vodafone and Idea is working on a merger which will help them save huge cost in both manpower, resources and spectrum in future. It is not going to be good for people working for these companies as there are going to be many redundant roles.

IUC Reduction and 2018 A Difficult Year for Telecom Industry

Now coming to the IUC reduction, it seems like the last blow to these as they have huge revenue from incoming calls compared to JIO which have a skew towards outgoing traffic.

This new IUC reduction from 14 p/sec to 6 p/sec is going to save millions of dollars for JIO and burn the same amount for other Telecom players in the coming time.

TRAI has also proposed that the IUC will be reduced to Zero in 2020 which will be the last nail in the coffin as far as other telcos are concerned.

While Telecom operators are planning to appeal against this TRAI order and may go to Supreme Court to stall it, TRAI don’t seem to be cared about the plight of other telecom operators.

In muted sounds they have been saying this benefits the only new operator which have lower share of incoming calls compared to outgoing calls and the decision is biased. But who can prove that, no one.

If you have read the book “Against All Odds” – Dhirubhai Ambani tells how adversity can be turned to opportunity, probably a lesson well learned by the elder son, not so by the younger one.

I am pretty sure the TRAI’s decision will hold and things will go as planned for some and not so planned for others.

You can read more about the best prepaid plans here and JIO Phone details too.

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