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

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.

By: | New Delhi | Published: June 19, 2017 6:38 AM
Bharti Airtel, JIO, Vodafone, Idea Cellular, DoT 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. (PTI)

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.

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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.

  1. S
    Shanks
    Jun 19, 2017 at 2:20 pm
    Government collusion with reliance, ruining the viability of the entire industry. Once again the over taxed tax payers will have to pick up the tab. Great governance. How long more the public is going to be enarmoued with this incompetent government ?????
    Reply
    1. I
      Indian Ears
      Jun 19, 2017 at 1:15 pm
      The amounts the Govt was collecting are ultimately being paid by mobile service subscribers.... who are clearly being Unfairly burdened. The TRAI is correct in supporting JIO's pro consumer policies ...
      Reply
      1. J
        Jayaprakash Pk
        Jun 19, 2017 at 10:14 am
        Jio in a recent report says that the in bent operators were only collecting money from customers as revenue without investing a sizable chunk of it for technological upgrades like network modernization. That shows they were interested in making profits and we were reading their press released claiming steady increase in revenue and subsequent profit generation every quarter in the year. Now things have come to a pass for them as Jio has launched a 4G modern network across the country and also started providing free data and calls to their customers. This has definitely made financial position of Jio as well as other operators very bad and all of the in bent operators have started declaring huge losses against profits made an year ago. Any telecom infrastructure can not earn money in the initial years is best known to all in this field and what the operators have forgotten is to invest money in the network which has resulted as disadvantageous for them now.
        Reply
        1. A
          ATUL
          Jun 19, 2017 at 9:32 am
          17000 crores is the anount of unholy money that the government has sucked out of us --- imagine what these operators were upto ---blood suckers both DoT and these operators
          Reply
          1. H
            Hitesh
            Jun 19, 2017 at 1:26 pm
            Do you know before This entry. Airtel has the highest Arpu which was between 150-200 bucks. And R jios Arpu is approx 300-350. So here is the game. See the bigger picture.
            Reply
          2. A
            Apte
            Jun 19, 2017 at 8:38 am
            1. Earlier three Telecom companies (Airtel, Vodafone Idea) were dictating terms to customers but after R-Jio’s entry in the telecom services market they have been compelled to offer highly compe ive tariff, which has led to loss of revenue for telecom companies and consequently for DoT. 2. After entry of R-Jio, these telecom companies have to offer highly compe ive tariff as R-Jio has all resources to try every trick in the trade for capturing a sizeable market share. 3. Question is this: If in any market, a new compe or makes an entry and emerges stronger or disrupts the market, can the government protect the existing market players? Is there a case for government concessions to these players who have earlier seized market share of public sector telecom companies and earned huge profits? I believe that the government should not interfere but protect interests of customers first, even as ii insists that good quality of service and affordable tariff are foundation of survival.
            Reply
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