- Earlier this month, telecom companies raised tariffs by as much as 40%
- The industry’s ave
rage revenue per user (ARPU) will improve by about 25% to ₹145 in FY21 from around ₹116 in FY 2019 after this revision in tariffs, CRISIL said
A slew of positive measures taken by the government and the sector regulator along with an up to 47% tariff hike by operators are expected to improve earnings and swing the fortunes of the telecom operators. But analysts believe the larger issue of adjusted gross revenue (AGR) remains an overhang and operators getting a relief from the government will be key.
“Green shoots of recovery are visible for the telecom sector, driven by one of the steepest tariff hikes announced by the telcos and deleveraging initiatives undertaken by them. TRAI's decision on IUC and the consultation of floor price are positive," said Ankit Jain, assistant vice president of corporate ratings at ICRA Ltd.
“The debt of the sector is also likely to come down with the deleveraging done and tapering of capex intensity. The revenue and EBITDA are likely to post healthy growth in FY21 driven by tariff hikes," he added. “However, the outcome of the AGR issue is the watchful event and the amounts payable along with timelines and funding mix will set the tone of the coming year.".
Bharti Airtel has set aside ₹34,260 crore and Vodafone Idea has made provisions for ₹25,677.9 crore in the September quarter after the Supreme Court upheld the government’s definition of revenue based on which telecom companies pay levies. This has caused a heavy blow to the two telecom operators.
At the Hindustan Times Leadership earlier this month, Aditya Birla Group chairman Kumar Mangalam Birla had said that the group’s telecom unit, Vodafone Idea, will have to “shut shop" if there was no relief from the government following the Supreme Court ruling on AGR.
Clarity is needed on the payment timeline and the amounts to be paid as Airtel and Vodafone Idea await a final order on the review filed by them against the verdict at the apex court.
“2019 was the bottom of the trough for the sector and next year is expected to be better as ARPUs will improve. There is a little more stability on the regulatory front with IUC to stay for a year," said," Rajan S. Mathews, Director General, Cellular Operators Association of India (COAI), said. “Given the broad implication of the Supreme Court ruling which has now ensnared companies outside the telecom space, we hope the government will devise a suitable way out of the conundrum".
Earlier this month, telecom companies raised tariffs and the regulator deferred by a year a plan to scrap a levy charged by operators for handling incoming calls from rival networks, offering relief to older telecom companies that generate a part of their revenue from interconnect usage charges (IUC).
TRAI this month also kick-started a consultation process to determine if regulatory intervention is required in fixing tariffs and the need for a floor price for mobile services, which has come as welcome relief for operators clamouring for a rise in tariffs.
"There is some visible improvement in the health of the telecom sector. The slight growth in operators' revenue is a good sign. However, the problems are far from over. Upgrading networks requires huge investments," said Mahesh Uppal, director at communications consulting firm ComFirst India said.
The industry’s average revenue per user (ARPU) will improve by about 25% to ₹145 in FY21 from around ₹116 in FY 2019 after this revision in tariffs, CRISIL Ratings said in a note dated 9 December.
“It remains to be seen if telecom companies are in a position that banks will lend to them. In this situation, in the short term, the operators will focus more on making services better for high ARPU consumers, which might not be ideal," Uppal said.
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