Airtel accuses Reliance Jio of predatory pricing as telcos meet ministerial group

Airtel says Reliance Jio has adopted 'predatory pricing' to win market share by providing services below cost, which has severely hit the industry's revenue, net income

Updated16 Jun 2017
United against rival Reliance Jio, Airtel, Vodafone and Idea Cellular met the inter-ministerial group (IMG) individually. Photo: Reuters
United against rival Reliance Jio, Airtel, Vodafone and Idea Cellular met the inter-ministerial group (IMG) individually. Photo: Reuters

New Delhi: India’s largest telecom company Bharti Airtel on Friday accused newcomer Reliance Jio of predatory pricing and demanded that operators be paid more for calls terminating on their networks as also the right to retain customers through incentives.

United against rival Jio, the three incumbent operators—Airtel, Vodafone and Idea Cellular who met the inter-ministerial group (IMG) individually—said the current call connect charges or IUC of 14 paise/minute is below cost and needs to be corrected.

Idea argued that Interconnection Usage Charges (IUC)—paid by one telecom operator to another for connecting phone calls—need to be correctly determined to “prevent predatory voice pricing environment”.

It also said that the Jio’s free offerings had impacted the industry “adversely” and suggested imposition of floor rate for both voice and data tariffs to check “predatory pricing”.

“Only solution is to have floor prices for voice, SMS and data services so mobile telecom businesses generate adequate profit to invest and then compete based on quality of service,” Idea said citing markets like Sri Lanka and Bangladesh which have imposed floor prices for mobility services.

Idea further said that the four big operators have cumulatively lost Rs8,200 crore of revenue in the second half of last fiscal as compared to the first half. The free offerings had driven the industry on path of degrowth, it said in its presentation.

Airtel alleged that Jio had adopted “predatory pricing” approach specifically aimed at winning market share by providing services below cost. This has severely hit the industry’s revenue, net income and return on capital employed, Airtel pointed out.

“To prevent abuse of below cost termination charges, it is recommended that the present IUC should be corrected and fixed at full cost incurred by the terminating operator,” Airtel said in its presentation to the IMG.

It further said that telecom regulator Trai should be “restrained” from any further reduction in IUC till the matter is finally adjudicated in court as it would cause “irreparable financial loss” to Airtel and other operators.

The Sunil Mittal-led company emphasised that operators should continue to have the “right to retain customers” through offers and discounts.

Jio had earlier alleged that incumbent operators were lining-up customised retention offers to influence subscribers who want to shift to a rival network. It had termed such methods as being “unfair and deceptive”, and claimed that the offers were being presented to customers “surreptitiously” on one-to-one basis and not available to the general public.

Airtel further said an investment of Rs2 lakh crore would be needed by 2020 to achieve the goal of creating infrastructure for Digital India, but that the key players critical for driving the digital opportunity were under “severe financial stress”.

The incumbents also spoke in one voice on reduction of levies like licence fee, spectrum usage charges and GST. Vodafone sought deferment of mobile termination charges review by two years till “market stabilises”, and said that these rates should reflect “full cost recovery”.

Its prescription for the failing industry health included doing away with spectrum usage charge (SUC) altogether or reducing it to 1%; cutting Universal Service Obligation rates to 3 per cent with sunset date; and lowering of GST rate to five per cent (from 18%).

Airtel has sought reduction in licence fee to 3% and bringing SUC to uniform one per cent rate. It has also pitched for relaxed spectrum pay-outs with five year moratorium, and lower GST rates.

The IMG, constituted to suggest policy reform to mitigate sector’s financial stress, has been holding dialogue with individual operators this entire week. Today’s presentation by Airtel, Vodafone and Idea, winds up the week long discussion that IMG held with all the telecom operators individually.

Earlier this week, the IMG met senior executives from Reliance Jio, Reliance Communications, Tata Teleservices and Aircel. It has also held discussions with telecom PSUs Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd too. The IMG also met four major lenders, including State Bank of India, who voiced concerns over “stress” in the telecom sector and flagged possibility of defaults by debt-laden operators.

The incumbent operators have been vocal about the onslaught of free voice and data offers by the aggressive newcomer Reliance Jio and its impact on the industry’s revenue in 2016-17. Earlier this week, Jio had ascribed the financial stress in the telecom sector to existing operators like Bharti Airtel and Idea running businesses on debt and investing heavily in unrelated sectors.

It alleged that incumbent operators have been reluctant in infusing equity and hence the financial stress is their own creation—a charge that was vehemently refuted by the three operators today. The large operators have cited Rs4.6 lakh crore cumulative debt, and are making a case for urgent relief measures like extension on payment of deferred spectrum liability, and cut in levies.

Trai met all the operators on Thursday to discuss the industry’s financial difficulties and measures that can be taken to ease the situation.

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