Vodafone Idea may gain from IUC levy extension

A third of earnings is from the charge

The Telecom Regulatory Authority of India’s (TRAI) proposal on deferring the implementation of the zero interconnect usage charges (IUC) regime, if implemented, is likely to benefit Vodafone Idea, as the ailing telco will get some revenue from the interconnect fee. IUC is a cost levied by telcos handling incoming calls from rivals.

The zero IUC regime was to kick in from January 2020. However, TRAI cited the lack of migration on 4G and the imbalance of off-net traffic between operators as reasons for reconsidering the applicable date.

Vodafone Idea saw its shares jump 11.93% to ₹5.44 in a weak Mumbai market on Thursday.

“Vodafone Idea and Bharti Airtel stand to gain 20% and 4% respectively on 1QFY20 consolidated EBITDA. On the other hand, RJio might see a 15% negative impact on EBITDA if the decision is deferred,” according to Motilal Oswal research note.

“IUC cut-off, if deferred, will be a positive for Vodafone Idea. [About] 30% of Vodafone Idea’s EBITDA is led by net IUC revenues and this was an overhang on the stock. It will be negative for Jio as it pays about 18% of its EBITDA as IUC charges. For Bharti, the positive impact is 5%,” according to Jefferies Equity Research. Jefferies believes price hikes are unlikely in FY20 and will happen once Jio becomes the dominant player with 40%-plus market share which is expected in FY21. Vodafone Idea market share is likely to fall to about 20% while Bharti’s will to remain steady at 30% market share by FY22.

Shares of Bharti Airtel closed up 0.58% at ₹337.7 while shares of Reliance Industries closed down 2.24% to ₹1178.7.

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