New Delhi: The Telecom Commission has written to the finance ministry requesting it to slash the telecom department’s non-tax revenue target for the current fiscal year by as much as 38%, citing “severe financial stress” faced by the industry.
The telecom sector is under severe stress because of “rapidly declining revenues” of all the major telecom operators, the telecom department’s highest decision-making body said in a 1 June letter seen by Mint.
In the letter, the commission’s member (finance) Anuradha Mitra said that the non-tax revenue target for the department of telecommunications (DoT) may be revised to Rs29,524.15 crore from a projected Rs47,304.71 crore.
It said licence fee collections will fall from a projected Rs16,664 crore to Rs9,255 crore in 2017-18. It expects spectrum usage charge collection to be significantly lower at Rs4,970 crore. It also expects spectrum auction proceeds this fiscal year to be nil even as DoT has sought the telecom regulator’s views on the next round of spectrum auctions.
Therefore, the estimated collection on account of spectrum charges, deferred payments and spectrum auction would be Rs17,056.64 crore, as against the earlier projection of Rs26,445.03 crore. The commission also estimates total liabilities of telecom firms at Rs7.29 trillion, far higher than the Rs4.5 trillion figure that has been widely reported.
Further, it said that one of the prominent factors leading to a fall in revenues is the free promotional offers and continuation of tariffs of promotional nature in the market.
“TSPs (telecom service providers) have introduced bundled voice and data integrated plans. Market analysts have estimated that the price cuts have ranged between 45% and 67% for data recharge,” the Telecom Commission’s Mitra said in the letter, adding that the sector would require an investment of Rs2.5 trillion by 2020 and the capacity of telecom firms to fund capital expenditure is also constrained in view of their stretched balance sheets.
“The sector is highly leveraged and as per assessment of the banking sector, total outstanding liabilities on the TSPs could be as much as Rs7.29 lakh crore (trillion),” she said, adding that the last spectrum auction in 2016 was practically funded by bank debt.
On 4 April, the Reserve Bank of India issued an advisory to banks to review loans to telcos and consider making provisions for standard assets in the sector at higher rates so that necessary resilience is built into the lenders’ balance sheets should the stress reflect on the quality of exposure to the telecom sector at a future date. Banks have also been advised to monitor their exposure to the sector closely.
“The RBI advisory and stress in the sector place a question mark on the ability of TSPs to fund further spectrum purchases. In the circumstances, spectrum auction proceeds for 2017-18 are being taken as nil,” Mitra said.
The government has taken note of the state of the affairs in the sector. An inter-ministerial panel led by a senior official in the telecom ministry on 12 June started hearings on a possible bailout of debt-laden telecom companies even as most of the firms raised the pitch of their demand for one.
India’s telcos are loaded with debt—around Rs4.85 trillion at the end of December 2016—and face the burden of payments due to the government for spectrum (close to Rs3 trillion). They also face intense competition, with the average revenue per user of most falling sharply since the launch of Reliance Jio Infocomm Ltd’s services, which were initially free.
Jio’s impact has been such that the aggregate revenue of Indian telcos fell for the first time since 2008-09, to Rs1.88 trillion in 2016-17 from Rs1.93 trillion the previous year, according to brokerage CLSA. This is likely to decline further to Rs1.84 trillion in 2017-18.
“There is unprecedented pressure on revenues on the sector and that has largely been created by free services and offers,” said Rajan Mathews, director general, Cellular Operators Association of India. “We have been making representations to the government and Trai (Telecom Regulatory Authority of India) seeking an immediate intervention into the matter.”