Telcos’ Share in NPAs a Concern
WRONG NUMBER Survey noted that Jio entry had led to a brutal price war
New Delhi: Reliance Jio’s entry with free voice and data has led to a brutal price war in the telecom industry, hurting revenue and profitability of incumbents amid ballooning debt, increasing the sector’s share of non-performing assets, which is a cause for worry, the Economic Survey said.
“With introduction of Reliance Jio Infocomm on 5 September 2016, competition extended from cheaper calls to cheaper data,” the Economic Survey Volume 2, released Friday, said.
Jio's pricing scheme “forced incumbent telecom firms” to cut voice call rates and cost of 1 GB data to average $ 1.9 during January-March 2017, the survey added. Adjusted gross revenue of the top three telecom companies in India - Bharti Airtel, Vodafone India and Idea Cellular – fell sequentially by 7.98%, 5.14% and 4.91% respectively in the third quarter of FY17.
The competition has “trapped the telecom sector into highly leveraged with interest coverage ratio turning less than 1 since third quarter of 201617,” the survey said. “However, what's worrying is that share of the telecom sector in the non-performing assets (NPAs) has now increased… the share of NPAs of telecom sector in total NPAs of infrastructure sector increa- sed to 8.7% in 2016-17 from 5% in 201516,” it said. However, the total NPAs of telecom sector in public sector banks fell to .₹ 2,335 crore from .₹ 3,465 crore in the same comparable period.
The sector has debt of nearly .₹ 5 lakh crore and the banking sector — which pegs debt at .₹ 7.29 lakh crore — is worried that competition will lead to defaults. As per the survey, the mobile industry in India accounts for 6.5% ($ 140 billion) of GDP, and employs over 4 million people direct and indirectly.