NEW DELHI :
Ratings agency ICRA has maintained a negative outlook for the Indian telecom industry, where major companies will have to repay massive dues to the department of telecommunications (DoT) after an unfavourable Supreme Court (SC) verdict in the adjusted gross revenue (AGR) case. The ratings agency has given its outlook until the end of this financial year ending March 2020.
The telecom industry’s three main players—Bharti Airtel Ltd, Vodafone Idea Ltd and Reliance Industries Ltd’s Reliance Jio Infocomm Ltd--which are already grappling with mounting debt and shrinking revenues, are required to pay around ₹92,000 crore to the government in form of retrospective AGR dues.
The negative outlook for the sector comes in the backdrop of SC’s 24 October order in the 14-year-long dispute over the definition of AGR between the DoT and telecom companies. The SC had asked the firms to pay the dues within three months.
Levies in the telecom sector are based on a percentage of their AGR. The DoT argued that telecom companies’ AGR included income from sale of handsets bundled with services, dividends from subsidiaries, besides other income. The DoT contended that the firms had underreported their revenue and thus, paid lower taxes and levies.
After the entry of Mukesh Ambani-led Reliance Jio in 2016, the telecom operators have been reeling under pressure of predatory pricing, decline in revenues and profitability.
“Consistent downward revision in prices resulted in one of the steepest falls in the industry average revenue per user (ARPU) levels, with the estimated blended ARPU falling from Rs. 169 in Q1 FY2017 to Rs. 124 in Q1 FY2020," ICRA said.
“Further, the industry is saddled with elevated debt levels and consistently high capex requirements. The debt has consistently remained high owing to reduction in organic cash flow generation and consistently high capex requirements," ICRA added.
As per ICRA estimates, the telecom sector’s debt as on 31 March 2019 stood at ₹5 lakh crore, which may be reduced to around ₹4.4 lakh crore by 31 March 2020, on account of measures including rights issue and monetization of assets.
“Further, the telecom operators announced a steep tariff hike, first of its kind in a long time, to the tune of 35-40%, which will manifest into improvement in ARPU levels and healthy improvement in organic cash flow generation," ICRA noted.
Though a petition has been filed in the SC seeking review of the 24 October order of the SC, the government is, meanwhile, not considering a waiver of penalties and interest on outstanding licence fee dues based on AGR, or an extension of the payment deadline.