Reliance Jio interconnect bill may hit Rs 2,400 crore in its first year

KOLKATA: Reliance Jio Infocomm's annual payout towards interconnect charges (IC) at 14 paise/minute could be as high as $360 million (Rs 2,400 crore approx) in its first year of commercial operation, say industry executives and analysts.

The Mukesh Ambani-owned company's estimated interconnect payout, they say, is based on a conservative assumption that the 4G entrant will have at least 30 million customers in its first year with an average monthly minutes of usage (MoU) of 400-600 band.

IC is the charge that a telco needs to pay for each call terminating on another operator's network. "Jio would have to make IC payments at 14 paise/minute for VoLTE calls terminating on other networks. We estimate a $360 million impact for 30 million subscribers in year 1," said a Bank of America-Merrill Lynch note seen by ET.

An industry insider however disagreed with estimates, noting that with 30 million subscribers in year 1, Jio's revenue is unlikely to exceed Rs 1,200 crore, which is half the charges pegged in the report.

According to the US brokerage however, the 4G entrant could bear this impact for a year, and as incoming-outgoing traffic balances with more subscribers on the Jio network, its IC payments would come down. However, "if the incoming-outgoing traffic does not balance, then Jio will be impacted, led by IC payments," Bank Am-Merrill Lynch said in its note. "Since bulk of Jio's call traffic in initial months will terminate into the traditional circuit switch (CS) networks of incumbent carriers, the company's interconnect payout in the first year will easily be upwards of $330 million," said a senior executive at one of India's leading mobile phone companies.

As of press time, Reliance Jio did not reply to ET's request for comment. Industry concerns about Jio facing a sizeable IC payout after its first year of commercial operation comes at a time when the 4G entrant has accused incumbent carriers of trying to sabotage its entry by denying it adequate interconnection points, causing call drops in a majority of calls from its network, delaying its commercial launch.

Incumbents, in turn, maintain they have provided adequate interconnect points and won't offer more until Jio starts commercial services. Experts expect Jio's VoLTE-based 4G network to also face connectivity challenges while plugging onto those of incumbent carriers like Bharti Airtel, Vodafone India and Idea Cellular, as the 4G entrant does not have its own 2G/3G fallback .

"Since Jio runs a pure `internet protocol' or IP-based 4G network, call drops could arise while connecting to incumbents networks that are, typically, a combination of 2G/3G/4G networks and are not completely IP-based," says Nitin Soni, director at rating agency Fitch. Brokerage Bank Am-Merrill Lynch also noted "once Jio's empty 4G network starts filling, the company will have to invest more in towers and small-cells to maintain the quality of its VoLTE network."

But an executive familiar with Jio's 4G network dismissed the possibility of such call drops on grounds that the company has installed adequate media gateways at call handover points that act as a bridge between different transmission technologies and enhance service to end-user connections. "Media gateways, typically, convert IP calls into circuit switched variety, thereby minimising chances of call drops while terminating VoLTE calls into non-IP networks," he said.

But Fitch's Soni expects Jio's connectivity challenges for 4G VoLTE calls to be pronounced in the Tier-2 & 3 towns where incumbents don't have similar IPbased networks in place.