Reliance Jio impact: Telecom sector set to see Rs 17,000 cr revenue disappear

The DoT anticipates that the revenue it earns from the sector will fall by 38% in the current fiscal on account of “severe financial stress” and a “rapid decline in earnings” of the operators.

The Department of Telecom (DoT) anticipates that the revenue it earns from the sector will fall by 38% in the current fiscal on account of “severe financial stress” and a “rapid decline in earnings” of the operators.

The DoT has asked the finance ministry to revise its non-tax revenue target downwards to Rs 29,524 crore for FY18 from the earlier estimated Rs 47,304 crore, sources said.

The development comes in the backdrop of the telecom industry facing one of its worst nightmares with hyper competition eating into revenues and margins, which the government and analysts fear is likely to continue and can severely impact the industry’s loan repayment commitments and other liabilities.

The government fears that the total outstanding liabilities of the telecom operators, which are highly leveraged, could be as high as Rs 7.29 lakh crore, sources said.

DoT member (finance) Anuradha Mitra, in a letter to the secretary, Department of Economic Affairs (DEA), Tapan Ray, has asked that the non-tax revenue target for the DoT for this fiscal be revised downwards on account of the headwinds faced by the sector.

Describing the market condition, Mitra said that spectrum usage charge (SUC) and the licence fee (LF), which the DoT collects from the operators on a quarterly basis, have declined for the first time in the last 17-18 years with consistent fall in the last three quarters of FY17.The fall in LF alone was over 25% in Q4 FY17 to Rs 2,686 crore against Rs 3,450 crore in Q3. Gross revenue too, declined by Rs 26,000 crore in FY17 to `2.10 lakh crore compared to FY16.The telecom ministry expects the current headwinds faced by the sector to continue for “some time”.

Analysts and government officials said the free offers and continuation of data and voice tariffs of promotional nature by the new entrant, Reliance Jio, forced rivals to respond with bundled voice and data plans. Price cuts on data are in the range of 45-67% alone, besides free local and STD calls.

“This has led to a decline in revenues that will adversely impact the capacity of the operators to invest in capex. This will in turn impact investments in network and technology,” Mitra said. The DoT expects investment of around Rs 2.5 lakh crore is required over the next three-four years in expansion of VoLTE and 4G, which looks difficult in the current situation as the stretched balance sheets of telcos make it difficult to fund investments through borrowings. To deal with the issues affecting the viability and repayment capacity of the industry, which has been one of the fastest growing sectors providing employment to 4 million people and contributing 6.5% to GDP, an inter ministerial group has been formed, she informed Ray.

That apart, with the operators scrambling to retain subscribers the condition is expected to worsen further.

LF collections, which were projected at Rs 16,664 crore for FY18, are now seen declining to `9,255 crore for the fiscal.

SUC collections also followed the same trend. According to DoT, advance collections for Q1 FY18 for SUC showed an 8% decline over the previous quarter. Collections are expected to be “significantly lower” at `4,970 crore for the entire fiscal, Mitra said.

The deferred payments from past spectrum auctions are likely to be `12,054 crore for FY18. DoT sources said that it has asked Trai for recommendations for the next round of spectrum auctions, but in view of the current scenario, it is unlikely that the government will earn any revenue as the ability of telcos to raise funds is in doubt.  Mitra said that the estimated collection from SUC, deferred payments and auction is likely to be only `17,056 crore during FY18 as against the earlier projection of `26,445 crore.

Source:http://www.financialexpress.com/industry/reliance-jio-impact-telecom-sector-set-to-see-rs-17000-cr-revenue-disappear/725224/

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