Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Industry / Telecom/  Tariff hikes, stay on IUC may help green shoots sprout in telecom
BackBack

Tariff hikes, stay on IUC may help green shoots sprout in telecom

Outcome of adjusted gross revenue issue and amount payable along with funding mix may set tone for the year
  • In a heavy blow to telcos, the Supreme Court had upheld the government’s definition of revenue
  • telecom firms raised tariffs by as much as 40% while Trai deferred a plan to scrap IUC by a year. (Mint)Premium
    telecom firms raised tariffs by as much as 40% while Trai deferred a plan to scrap IUC by a year. (Mint)

    NEW DELHI : Telecom operators expect a turnaround in their fortunes in the coming year thanks to a slew of positive measures by the government and the Telecom Regulatory Authority of India (Trai) and also a massive tariff hike by operators that is expected to improve earnings.

    Analysts, however, believe that the outcome of the adjusted gross revenue (AGR) issue and whether operators receive any relief from the government will be key.

    “Green shoots of recovery are visible for the telecom sector, driven by one of the steepest tariff hikes announced by the telcos and deleveraging initiatives undertaken by them. Trai’s decision on IUC (interconnect usage charge) and the consultation of floor price are positive," said Ankit Jain, assistant vice-president of corporate ratings at Icra Ltd. IUC is levied by telecom operators on incoming calls from rival networks.

    “The debt of the sector is also likely to come down with the deleveraging and the tapering of capex intensity. The revenue and Ebitda are likely to post healthy growth in FY21 driven by tariff hikes. However, the outcome of the AGR issue is important and the amounts payable along with timelines and funding mix will set the tone of the coming year," Jain said.

    Bharti Airtel has set aside 34,260 crore and Vodafone Idea has made provisions for 25,677.9 crore in the September quarter after the Supreme Court upheld the government’s definition of revenue, based on which telecom companies pay levies. This dealt a heavy blow to the two operators.

    At the Hindustan Times Leadership earlier this month, Aditya Birla Group chairman Kumar Mangalam Birla had said that the group’s telecom unit, Vodafone Idea, will have to “shut shop" if there was no relief from the government following the apex court ruling on AGR.

    Clarity is, however, awaited on the payment timeline and amount as Airtel and Vodafone Idea have filed a review petition on the court ruling.

    “The year 2019 was the bottom of the trough for the sector and next year is expected to be better as ARPUs (average revenues per user) will improve. There is a little more stability on the regulatory front with IUC to stay for a year," said Rajan S. Mathews, director general at Cellular Operators Association of India. “Given the broad implication of the Supreme Court ruling that has ensnared companies outside the telecom space, we hope the government will devise a suitable way out of the conundrum."

    Earlier this month, telecom companies raised tariffs by as much as 40% while the regulator deferred by a year a plan to scrap the IUC, offering relief to older telcos that generate a part of their revenue from it.

    Trai this month also kick-started a consultation process to determine if regulatory intervention is required in fixing tariffs and the need for a floor price for mobile services, which has come as welcome relief for operators clamouring for tariff increase.

    The industry’s ARPU will improve by 25% to 145 in FY21 from 116 in FY20 following the revision in tariffs, Crisil Ratings said in a note on 9 December.

    “There is visible improvement in the health of the telecom sector. The slight growth in operators’ revenue is a good sign. However, the problems are far from over. Upgrading networks requires huge investments," said Mahesh Uppal, director at communications consulting firm ComFirst India.

    “It remains to be seen if telecom companies are in a position that banks will lend to them. In this situation, in the short term, the operators will focus more on making services better for high ARPU consumers, which might not be ideal," Uppal said.

    Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

    Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
    More Less
    Published: 25 Dec 2019, 04:40 PM IST
    Next Story footLogo
    Recommended For You
    Switch to the Mint app for fast and personalized news - Get App