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ARPU key to telcos' sustainability, should rise by 13-30% annually: Icra

The industry ARPU will have to rise to Rs 200 in the medium-term for viable operations, and so further tariff hikes cannot be ruled out, Icra said

telecom sector | Adjusted gross revenue

Press Trust of India  |  New Delhi 

agr dues, telecom, debt, growth, cash, mobile, smartphone
Consistent increase in data usage and steady upgradation of customers to 4G will also drive the ARPU growth going forward, the release said.

Long-term sustainability requirements demand that telcos will have to raise their average revenue per user (ARPU) by 13-30 per cent annually, Icra said on Friday.

The industry ARPU will have to rise to Rs 200 in the medium-term for viable operations, and so further tariff hikes cannot be ruled out, Icra said.

Uncertainties around the (AGR) issue persists, despite green shoots of recovery in form of steady ARPU improvement backed by tariff hikes of December 2019, along with the deleveraging moves undertaken by telcos and moderation of Capex intensity.

"If (the) SC (Supreme Court) allows a 20-year payment term, it will provide a much-needed breather for the industry provided the ARPU expansion sustains," rating agency Icra said in a statement.

While the realisation per subscriber has seen a steady improvement in the recent past following the introduction of minimum recharge plans and the tariff hikes in December 2019, "further ARPU improvement in the future is essential", it said.

Icra Assistant Vice President Ankit Jain said the government had budgeted Rs 1.33 lakh crore as non-tax receipts from the for FY2021.

"If (the) SC allows staggered payment terms for AGR dues, there will be a sizeable shortfall in the Government collections vis-a-vis the budgeted amount.

"As per our estimates, for a 20-year payment term, the receipts from the would be around Rs 55,000 crore for FY2021, including the upfront payment for the upcoming spectrum auctions, while this amount is expected to decline to Rs 34,000 crore for FY2022," Jain added.

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Commenting on the sector dynamics, Anupama Arora, Vice President and Sector Head, Corporate Ratings, Icra, noted that telcos, which have already done sizeable deleveraging, need to organically improve their cash-flows for longer-term sustainability of operations.

"A 20-year payment plan, if approved by the SC would result in an annual outgo of around Rs 9,000 crore for the industry, while the amount increases to around Rs 13,400 crore for a 10-year payment term.

"This dampens the relief provided by the deferment of the auction instalment payments for 2 years to some extent, although immediate payment of the AGR dues will have long-lasting impact on the industry structure," Arora added.

Consistent increase in data usage and steady upgradation of customers to 4G will also drive the ARPU growth going forward, the release said.

"The current situation has resulted in substantial increase in mobile data usage on account of work from home regime as well as content viewing. This has resulted in general up-trading of ARPUs in terms of customers upgrading their plans for higher data allowance," it said.

These would necessitate additional investments to augment the network capacity for the surge in demand and might result in more spectrum requirement as well.

Icra said renewals of the expiries in some circles as well as consolidation of the 4G spectrum holdings are expected to drive the upcoming spectrum auctions.

As per estimates, the total participation in the upcoming spectrum auctions would be to the tune of Rs 55,000-60,000 crore, of which Rs 20,000-25,000 crore has to be paid upfront, the statement added.

"Icra expects that the increase in ARPUs required for various telcos to be in the range of 13-30 per cent annually going forward to be able to meet the AGR related payouts (assuming a 20-year payment term) along with the existing debt repayments as well as the spectrum installments which will start from FY2023.

"The industry ARPU will have to increase to Rs 200 in the medium-term for viable operations and thus, further tariff hikes cannot be ruled out," Arora said.

There would be a sudden increase in the payouts in FY2023 when the deferred spectrum installments will restart after a two-year moratorium. During this 2-year moratorium, the non-tax receipts of the government will be impacted, however, AGR dues and upcoming spectrum auction participation will provide a fillip, Icra added.

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First Published: Fri, July 03 2020. 19:32 IST