New Delhi: Investors aren’t the only ones worried about falling prices and diminishing profits in the telecom business; the government is too.
Citing free services and promotional offers as the main reason for a decline in the government’s revenue collection from the telecom sector, telecom secretary J.S. Deepak wrote in a letter to the Telecom Regulatory Authority of India (Trai) that the current financial state of the industry could also have a serious impact on India’s banking sector.
In the letter, dated 23 February (Mint has reviewed it), Deepak said the government’s licence fee collection in the current financial year has fallen from Rs3,975 crore in the June quarter to Rs3,584 crore in the September quarter and Rs3,186 crore in the December quarter.
He expects this to decline another 10% in the March quarter. The annual spectrum usage charge revenues are also likely to face a similar decline, the telecom secretary added.
“The main reason for the downward trend appears to be a tariff war in the industry triggered by free promotional offers. This can have a serious impact on the financial health of the sector, affect its revenue growth, and in turn, its capability to meet its contractual commitments which include payments to the government of instalments for spectrum purchased in auction, and repayment of loans to financial institutions and banks.”
Deepak’s letter expressed the concerns of the Telecom Commission, India’s apex telecom policymaker, which had met on 22 February.
The body, of which Deepak is a part, discussed the profitability of telcos.
In the quarter ended December, most telcos saw a decline in profits as they scrambled to compete with the free services offered by Reliance Jio.
On 21 February, Reliance Jio, which will start charging for data from 1 April (voice remains free) vowed to provide at least 20% more data to users on every tariff plan offered by its rivals, renewing concerns that the bruising price war in the world’s second largest telecom market by users is unlikely to end soon.
“The Telecom Commission also desired that in case Trai has a different interpretation of the above mentioned decisions/directions, there appears to be an urgent need to revisit and review its tariff orders/decisions/directions in the larger interest of government revenues as well as the telecom sector...,” Deepak wrote.
Speaking at the World Mobile Congress in Barcelona, Bharti Airtel Ltd chairman Sunil Bharti Mittal said the global telecom business has started “to taper off in terms of its revenue and that’s the first and foremost warning signal for our industry”.
“Subscriber growth has dropped to low single digits. Data usage growth is still hanging around 18%. But, the revenue growth is now down at 3%. It is at an unsustainable level for the industry, which is very capital-intensive,” Mittal added.