Telcos face funding challenge amid bruising tariff war, eroding revenue
Telecom sector would need $10 billion a year for the next 5-6 years to just fund the network requirements of the industry, says COAI director general Rajan Mathews
New Delhi: With eroding revenues and little hope for a recovery in the near term, telecom operators in the midst of a tariff war also face an unfavourable funding climate as they expand 4G network roll-outs and gear up for the introduction of 5G.
The Cellular Operators Association of India (COAI) says the sector needs massive investments.
“We would need $10 billion a year for the next 5-6 years to just fund the network requirements of the industry…In the next two years, you need to make investments for 5G, and that is not 10-20 MHz (spectrum) per operator, it is 100 MHz…how will we fund this?” Rajan Mathews, director general of the telecom lobby wondered.
Telecom has always been a cash-guzzling business with regular investments needed to buy spectrum and deploy networks. The challenge has become acute after the entry of Reliance Jio brought down tariffs, and the telecom regulator’s decision to halve interconnection usage charges (IUC), levied by mobile operators receiving calls on their networks.
While Idea Cellular’s loss more than tripled to Rs1,285.6 crore in the December quarter, its bigger rival Bharti Airtel reported a 39% fall in December quarter profit to Rs306 crore.
“Market cap of Indian telcos is lower than that of operators in other parts of the world. We are skeptical of any significant improvement in topline in near term for most. Topline growth requires a lot of work and investments, which will take time. Telcos need a disciplined approach to bring down costs. They also need to start targeting other segments and move away from the ones that are not generating return,” said Amresh Nandan, research director at Gartner.
On their part, telcos have started paring stake in non-core assets. Last year, Bharti Airtel said it plans to sell 20% stake in its DTH arm Bharti Telemedia Ltd to Warburg Pincus for $350 million, apart from planning to sell a controlling stake in tower arm Bharti Infratel Ltd.
Vodafone India and Idea Cellular have agreed to sell their respective standalone towers, totalling 20,000 towers, to ATC Telecom Infrastructure for around Rs7,850 crore. Idea Cellular also plans to monetise its 11.15% stake in Indus Towers.
“Eventually, like any other business, to remain competitive, telcos too will raise funds by monetising existing assets or acquiring fresh debt or both,” Mahesh Uppal, director at consulting firm ComFirst India.
Promoters too have been pumping money into their companies. Idea’s promoters have invested Rs3,250 crore while Singtel has indirectly raised its stake in Bharti Airtel by investing Rs2,649 crore in its promoter firm Bharti Telecom Ltd. Idea Cellular raised Rs3,500 crore through a qualified institutional placement last month while Bharti Airtel said it is planning an initial public offering for its African unit.
“If you look at the debt market...our domestic banks are pretty tapped out to the telecom sector. They are not keen to lend. That’s why most telcos are either going for private placement or in the international markets, that is where the funds are coming in. They are lending principally because of the strength of the brand names of the operators,” Mathews said.
Investors are also cautious because of the regulatory uncertainty, Mathews said. “We have never seen so many discussion papers under any regulator...issues that are even outside its ambit. I keep getting calls from nervous investors to explain what is going on,” he said.
Incumbent operators faced a blow when the regulator cut IUC from 14 paise a minute to 6 paise effective 1 October 2017.
Last month, Trai’s tariff order put strictures related to predatory pricing on companies with revenue and subscriber share of over 30%, a move that COAI said, without naming Reliance Jio, favoured only one operator.
However, the regulator says that it’s actually making things more explicit.
“Regulatory ambiguity is undesirable…Tariff has to be transparent, non-discriminatory and non-predatory as it was earlier too. These are not new terms introduced now. What we have done now is, we have clarified as to what are the attributes of transparency, non-predation and non-discrimination. That is all. I don’t know why somebody would say that it has increased regulatory risk. There is no risk at all,” Trai chairman R.S. Sharma said.
Further, telecom has a bright future and will grow by leaps and bounds, Sharma said.
“Telecom is not merely a vertical today. It is a platform for all kinds of services…Customers are lapping up data…There is no danger of demand slump in the sector,” he added.
Emails sent to Airtel, Idea, Jio and Vodafone were unanswered till press time.
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