Slowdown in capex on network rollout following spectrum purchase and a simultaneous increase in demand for wireless Internet led to problems such as call drops and poor service quality, credit rating firm ICRA today said.
“ICRA is of the opinion that prominent reasons for deterioration in service quality are expanding data volumes, which have exerted pressure on the overall network, and a slowdown in capital expenditure (capex) on network rollout or upgradation by telcos,” ICRA Senior Vice-President Sabyasachi Majumdar said in a statement.
Of late, quality of services has come under the scanner, given frequent call drops.
“The capex intensity, in turn, was constrained over the last few years largely on account of the fact that telcos had to deploy funds towards spectrum acquisition,” ICRA said.
In 2015, telecom operators jointly made a bid of around Rs 1.1 lakh crore towards spectrum acquisition and the total outgo in 2015-16 is estimated to be over Rs 49,000 crore.
Furthermore, the government is gearing up for the largest ever spectrum auction where radiowaves worth Rs 5.36 lakh crore will be put up for sale.
The industry has asked the government to defer the auction in the premium 700 Mhz band, which alone has potential to fetch bids of over Rs 4 lakh crore. The government, however, has decided to go ahead with auction of all available airwaves.
According to ICRA, performance on quality of service metrics is critical and the telcos cannot afford poor customer experience, especially in data services.
“The capex intensity has improved in FY16 and the telcos are guiding higher capex, going forward. This should drive the improvement in service quality from the current levels,” ICRA said.
It said the deterioration in quality metrics coincides with the period of strong growth in mobile data traffic following rollout of data services by all telecom operators, attractive data tariffs, and increasing penetration of smartphones.
“Moreover, addition of spectrum does not automatically translate into higher capacity as network capex has to be incurred to put the spectrum to use,” ICRA explained.
The intensity of network capex for Indian telecom operators is lower than 20-22 per cent for many major telecom service providers internationally and much lower than that of telcos in China, where it is in excess of 30 per cent, it said.
“For the ICRA sample, over the last five years, the cash outflows for spectrum acquisition comprised 44 per cent of the total capex. However, network capex has picked up as reflected by improvement in capex to sales ratio to 16 per cent and 17 per cent for FY15 and first half of FY16, respectively,” said Majumdar.
“ICRA expects this momentum to be maintained in the medium term.”