Telcos expect turnaround in 2020 driven by tariff hikes
NEW DELHI: Telecom operators expect a turnaround in their fortunes in the coming year thanks to a slew of positive measures by the government and the Telecom Regulatory Authority of India (Trai) and also a massive tariff hike by operators that is expected to improve earnings.
Analysts, however, believe that the outcome of the adjusted gross revenue (AGR) issue and whether operators receive any relief from the government will be key.
“Green shoots of recovery are visible for the telecom sector, driven by one of the steepest tariff hikes announced by the telcos and deleveraging initiatives undertaken by them. Trai’s decision on IUC (interconnect usage charge) and the consultation of floor price are positive,” said Ankit Jain, assistant vice-president of corporate ratings at Icra Ltd. IUC is levied by telecom operators on incoming calls from rival networks.
“The debt of the sector is also likely to come down with the deleveraging and the tapering of capex intensity. The revenue and Ebitda are likely to post healthy growth in FY21 driven by tariff hikes. However, the outcome of the AGR issue is important and the amounts payable along with timelines and funding mix will set the tone of the coming year,” Jain said.
Bharti Airtel has set aside ₹34,260 crore and Vodafone Idea has made provisions for ₹25,677.9 crore in the September quarter after the Supreme Court upheld the government’s definition of revenue, based on which telecom companies pay levies. This dealt a heavy blow to the two operators. At the Hindustan Times Leadership earlier this month, Aditya Birla Group chairman Kumar Mangalam Birla had said that the group’s telecom unit, Vodafone Idea, will have to “shut shop” if there was no relief from the government following the apex court ruling on AGR.
Clarity is, however, awaited on the payment t i meline and amount as Airtel and Vodafone Idea have filed a review petition on the court ruling.
“The year 2019 was the bottom of the trough for the sector and next year is expected to be better as ARPUS (average revenues per user) will improve. There is a little more stability on the regulatory front with IUC to stay for a year,” said Rajan S Mathews, director general at Cellular Operators Association of India. “Given the broad implication of the Supreme Court ruling that has ensnared companies outside the telecom space, we hope the government will devise a suitable way out of the conundrum.”
Earlier this month, telecom companies raised tariffs by as much as 40% while the regulator deferred by a year a plan to scrap the IUC, offering relief to older telcos that generate a part of their revenue from it.
Trai this month also kickstarted a consultation process to determine if regulatory intervention is required in fixing tariffs and the need for a floor price for mobile services, which has come as welcome relief for operators clamouring for tariff increase.