The Indian telecom companies are on a course correction as they finally decide to raise tariffs. It was Vodafone-Idea which first decided to bite the bullet and announced that the joint venture company would raise tariffs on its mobile services from the first week of December. It was followed by Bharti Airtel and later market disrupter Reliance Jio Infocomm followed suit. The state-run Bharat Sanchar Nigam Ltd (BSNL) has also announced its intention to raise the prices.
This was warranted long back and does not come as a surprise. While this is not enough, it is likely to do some damage control and also arrest fall in revenues because of price wars between the service providers.
While the quantum of hike is still not declared, many media reports have quoted sector analysts estimating the hike to be around 20% at the least.
This hike could be dearer to people with higher data tariff plans and significant consumption of data, but for an average user, the spike may not be that costly. Considering that the prices have been at the rock bottom for a long time, with what is being offered by the service providers, consumers should not mind paying a bit extra.
It is extremely important to have multiple players in the market with healthy competition between them for the customers to have better services and options to switch to the other operators if services offered by the existing operator do not meet his expectations.
Moreover, the operators will be able to invest in technologies only if they are profitable.
The average monthly revenue per user (ARPU), a key metric to gauge operator health was just over Rs 64 in the September quarter of FY19 which was down by almost 80% in 2005, at Rs 400.
The intense competition in the sector has been hitting the telecom companies very badly. The telecom sector’s gross revenue at Rs 2.24 lakh crore in 2018-19 (Apr-Mar) fell by about Rs 41,000 crore in three years on account of a dip in mobile services rates, Telecom Minister Ravi Shankar Prasad had told the Lok Sabha in a written reply to a question. Gross revenue of the telecom sector in FY17 was Rs 2.65 lakh crore, which fell to Rs 2.46 lakh crore in FY18.
The debt levels for operators have grown exponentially. One of the reasons is the intense price war. Bharti Airtel’s net debt stood at Rs1.18 lakh crore during the quarter ended September while Vodafone Idea’s net debt is over rupees one lakh crore during the same period.
The latter reported a consolidated net loss of Rs 509 billion (USD 7 billion) in Jul-Sep quarter which is the biggest loss for any telecom company in India, till now, while the former reported a consolidated net loss of Rs 230.45 billion during this period.
BSNL too has been witnessing dwindling revenues from its mobile services dropping by almost 50% to Rs 47 billion in 2018-19 (Apr-Mar) from Rs 112 billion in 2016-17.
Only Reliance Jio posted a quarterly consolidated net profit of Rs9.9 billion. Its net debt stands at over rupees one lakh crore.
Industry has been demanding setting-up a floor price for tariffs from the sector regulator Telecom Regulatory Authority of India (Trai) to prevent the Jio onslaught, which is unlikely to happen now as all operators (including Jio) have already decided to raise the prices. But, the issue is expected to be a part of the agenda for 2020 for the sector watchdog.
Sector’s poor show has also proved to be a whammy for the government with Adjusted Gross Revenue (AGR) declining by over Rs 46,000 crore between FY17 and FY19 from Rs 1.85 lakh crore in FY 17 to Rs 1.5 lakh crore a year later and to Rs 1.39 lakh crore in the year ended 31 Mar 2019, the telecom minister had then said.
Government earns revenues through AGR which is the usage and licensing fee that telecom operators are charged by the Department of Telecommunications (DoT). Currently, the operators are required to pay 8% of AGR as licence fee and between 3% and 5% of AGR as spectrum usage charges (SUC). This was despite an uptick in the overall subscriber base for the sector.
India is one of the largest telecom markets in the world with 1.18 billion subscribers.
The industry has also been making representations before the government to refund input tax credits worth Rs 36,000 crore. This would be a big relief for both Vodafone Idea and Airtel.
Mountain to climb
The recent Supreme Court judgement on calculation of AGR after a long-drawn battle between the operators and the government was a blow at a time when the industry was already reeling under financial burden. The verdict upheld the government’s definition of AGR which includes revenue from non-core telecom operations such as rent, dividend and interest income.
Vodafone Idea and Bharti Airtel owe the government AGR dues of over Rs 89,000 crore to be paid in less than three months. The deadline ends by late January. Though they have filed for a review of the apex court order.
While moratorium on payment of AGR is unlikely to come through, with the government disbanding a Committee of Secretaries (CoS), analyst fear for a further consolidation if no relief comes either from the government or through the review petition before the SC.
The government had set-up the CoS to suggest relief measures for the telecom sector.
Though the government has deferred spectrum payment dues amounting to Rs 42,000 crore for two years, it may not prove to be enough. According to an Economic Times report Vodafone Idea owes just under 24,000 crore in spectrum payment dues while Bharti Airtel and Reliance Jio owe over Rs 11,000 and Rs 6,600 respectively.
The amounts will be distributed equally in remaining instalments to be paid by these companies.
The journey looks arduous and laden with difficulties. Unless, the telecom companies start making profits, the recovery is impossible. Tariff hike is a way forward, to begin with.