The telecom industry in India has become an ultra-competitive one in the last eight months. Reinforced competitive intensity and pricing pressures have resulted in the telecom industry’s revenue and EBIDTA declining by an estimated 5 percent and 10 percent respectively during FY2017. The impact on the telecom industry’s financial health was visible in the second half of FY2017 post-Reliance Jio’s launch. Rating agency ICRA estimates the situation to remain weak during this fiscal as well, as the pricing pressures show no signs of abatement.
Since the launch of Reliance Jio, with constant downward calibration of prices, the gross ARPU levels for the ICRA sample (Bharti Airtel, Reliance Communications and Idea Cellular) have fallen by around 15 percent. The data subscriber base for the ICRA sample declined from 151.8 million as of September 2016 to 127.9 million as of March 2017, with Reliance Jio gaining most of these subscribers. This, coupled with the fall in realisations, resulted in a decline in gross ARPU from Rs. 181 for H2 FY2016 to Rs. 159 for H2 FY2017 for the ICRA sample.
Over the longer term, industry ARPU needs to increase for better financial health as also to service debt, manage the steady capex rate, and generate a return on the investments. ICRA estimates that the industry ARPU needs to increase from Rs. 150 per month currently to over Rs. 200 per month. However, this would take some time, driven by the conclusion of consolidation transactions which are currently in approval stage, higher usage by subscribers (mainly data usage), and strengthening of market positioning of the larger players.
Until such time, the primary industry concern is the elevated debt levels that have increased over the years. The total industry debt as on March 31, 2017, is Rs. 4.6 lakh crore - deferred spectrum debt at Rs. 1.8 lakh crore and non-spectrum debt at Rs. 2.8 lakh crore which includes estimated bank debt of Rs. 1.1 lakh crore.
Given the insufficiency of cash flow generation in comparison to repayment obligations and the capex requirements, the industry would need additional funding requirements to the tune of Rs. 70,000 crore for FY2018.
The telecom services are expected to get marginally costlier for the entire subscriber base under new Goods Services Tax (GST) - from the existing service tax at 15 percent to GST rate of 18 percent. While the prepaid subscribers would get lower usage value from fixed denomination packs, the tax burden on postpaid subscribers would increase.
However, with regard to full talk-time prepaid vouchers, the higher tax incidence would have to be absorbed by the telcos leading to some additional pressure on their cash flows. Additionally, the compliance and data collection requirements would increase, and the telcos would need to invest in revamping their IT and accounting systems to keep track of revenues across various states. Although, the industry would now be able to avail input credit of taxes (VAT on the purchase of goods), which was not available till now.
