The financial stress in the telecom industry is set to reflect in the revenues flowing into the government exchequer during the current financial year (FY2017-18). The Department of Telecommunications (DoT) has expressed its inability to meet its revenue target of Rs 47,305 crore for FY18 and has asked the finance ministry to revise the projection to Rs 29,524 crore — almost a 40 per cent fall.
In a letter to the finance ministry, reviewed by Business Standard, the DoT has said given the severe financial stress in the telecom sector and rapidly declining revenues of all major operators, the revenue targets for the DoT for FY18 would require a downward revision. The DoT had earlier projected an FY18 revenue target of Rs 46,351 crore, which was revised upward by the finance ministry to Rs 47,305 crore.
However, the DoT has pointed out that for the last three quarters, revenues of telecom service providers have been falling continuously, resulting in a drop in licence fees and spectrum usage charges (SUCs). Telcos pay eight per cent of their revenues as licence fee, and three to six per cent of the adjusted gross revenue as SUC to the government.
“The fall in licence fees in the fourth quarter (Q4) was more than 25 per cent over the previous quarter (third quarter, or Q3), with actual collections coming down to Rs 2,686 crore, from Rs 3,450 crore in Q3.
The sector’s gross revenue, which was Rs 2.36 lakh crore in FY2015-16, fell by Rs 26,000 crore in FY2016-17 to Rs 2.10 lakh crore,” the letter said.
The department believes that the trend of falling revenues will persist for some time due to promotional offers and low tariffs. Bundled voice and data integrated plans introduced by telcos, too, have hit revenues.
The letter cited market analysis to say that estimated price cuts have ranged between 45 and 67 per cent of data recharge.
The telecom industry already has outstanding debts of about Rs 4.5 lakh crore, incurred mainly on account of payments for spectrum, SUCs and other levies.
The industry has repeatedly, in its communication with the DoT, expressed concern over the financial stress in the sector.
Competition unleashed by Mukesh Ambani-owned Reliance Jio, which commercially launched its services September last, is believed to have adversely affected the telcos’ financials further.
The government has formed an inter-ministerial panel to address industry concerns. The panel recently held meetings with operators and banks to understand the problems faced by telcos.
The DoT said there was a concern that the fall in revenues might slow down the ability of operators to invest in capex (capital expenditure) to fund growth of the capital-intensive sector.
“It is estimated that the sector would require an investment of Rs 2.5 lakh crore up to 2020. Falling revenues will constrain the capacity of operators to invest in network upgradation and adopt new technology, thereby further impacting revenues,” the letter said.
The capacity of operators to fund capex through borrowing is also constrained, in view of their stretched balance sheets, the letter said. “The sector is highly leveraged and as per assessment of the banking sector, total outstanding liabilities of operators could be as much as Rs 7.29 lakh crore.”
In an advisory, the Reserve Bank of India is learnt to have asked banks to review loans to operators, and to consider making provisions for standard assets in this sector at higher rates, so that necessary resilience is built into the balance sheets, should the stress reflect on the quality of exposure to the sector at a future date.
Giving a break-up, the DoT has told the finance ministry that the licence fees were likely to fall to Rs 9,255 crore for FY18, against the target of Rs 17,497 crore. Similarly spectrum charges, which include SUC, deferred payments and spectrum auction, are likely to be Rs 17,057 crore, against the target of Rs 26,445 crore. The deferred payment is likely to be Rs 12,054 crore for FY18.
“With operators struggling to retain customers, it is expected that there will be some more downward adjustments in tariffs in the first three quarters at least, which may not be adequately compensated by rise in traffic volumes,” the letter said.
In the first quarter of FY18, advance collections of SUC have shown a decline of eight per cent over the previous quarter. Based on this and the general trend in revenues, the DoT fears SUC for FY18 may be significantly lower at Rs 4,970 crore.