The government yesterday announced a bailout package for the telecom sector. Brickwork Ratings has called the measures a “much-needed breather” for the industry. The telcos will now not have to worry about paying the adjusted gross revenue (AGR) dues and spectrum usage charges in the next four years. However, the interest on the dues will be added up and will be payable to the government once the moratorium period ends.
Brickwork Ratings has called for the need for tariff hikes. The rating agency said that the “woes” of the industry could only be solved with tariff hikes. This makes sense because if not now, the telcos will have to pay the dues at a later date (with interest added).
Brickwork Ratings Believe Government Reforms Are in Right Direction, But Tariff Hikes Necessary
Brickwork Ratings said that the average revenue per user (ARPU) for the industry needs to reach at least the Rs 200 level for the industry to operate smoothly. The current rate of return on their investments for the telcos is very less largely because of the low ARPU industrywide. The tariffs are too low for the operators to earn sizeable profits.
Even if there are a few profits, they can’t all be reinvested into the networks. A lot of money has to go towards research and development (R&D), statuary dues, unforeseen expenses, and more. For the telcos to actually give premium services, they need to earn in premium.
Also, the industry isn’t getting new institutional investors at the moment because of the low tariffs and subsequently low ARPU. No investor would want to tie up their money into an industry where the rate of return is very low.
But again, the two top operators including Airtel and Jio might not go for aggressive tariff hikes right away for getting a larger market share and because of this, Vodafone Idea’s hands are tied up as well.