Telecom Industry Debt Level to Elevate Despite Tariff Hikes: ICRA

Government looks at the spectrum auction as a serious money machine. The Government of India (GoI) had budgeted around Rs 52,800 crore as non-tax receipts from the telecom sector for FY2023 out of which it is estimated that around Rs 26,000 crore would come from the upfront payment of spectrum auction proposed in the current fiscal.

Highlights

  • The debt levels of the Indian telecom industry are expected to go up with the upcoming spectrum auction.
  • Both Airtel and Jio had undertaken major deleveraging activities by pre-paying serious chunks of spectrum dues resulting in savings of huge amounts of money in interest payments in the future.
  • Participation of the telcos in the auction would mean an elevated debt level for the telecom industry.

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Telecom Industry

The debt levels of the Indian telecom industry are expected to go up with the upcoming spectrum auction. While the Telecom Regulatory Authority of India (TRAI) has suggested a price cut for multiple spectrum bands, participation in the auction would mean an elevated debt level for the telecom industry.

Ankit Jain, Assistant Vice President & Sector Head, ICRA said even modest participation in this auction would mean the debt levels of the industry are likely to elevate further to Rs 4.8 lakh crore by March 2023.

This would happen despite the improvement in cash flow generation post the tariff hikes as well as deleveraging initiative was undertaken by the telecom companies, added Jain.

Government looks at the spectrum auction as a serious money machine. The Government of India (GoI) had budgeted around Rs 52,800 crore as non-tax receipts from the telecom sector for FY2023 out of which it is estimated that around Rs 26,000 crore would come from the upfront payment of spectrum auction proposed in the current fiscal, said Jain.

Another Round of Tariff Hikes Coming Soon

Both Airtel and Jio had undertaken major deleveraging activities by pre-paying serious chunks of spectrum dues resulting in savings of huge amounts of money in interest payments in the future. The telcos also know that the spectrum auction would add a lot of debt to their book and to not make their books look bad to the investors, going with deleveraging was the right option.

Further, with the positive cash flow that Airtel and Jio have, both the telcos would also be able to make upfront payments to the Department of Telecommunications (DoT) without breaking a sweat. Vodafone Idea (Vi) is in the process to raise additional funds so that even it can participate in the auctions in an impactful manner and also arrest subscriber loss by raising capex levels to aggressive invest in 4G network across the country.

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