Telecom may add to banks’ ill health
NEW DELHI: Investors aren’t the only ones worried about falling prices and diminishing profits in the telecom business; the government is too.
Citing free services and promotional offers as the main reason for a decline in the government’s revenue collection from the telecom sector, telecom secretary JS Deepak wrote in a letter to the Telecom Regulatory Authority of India (Trai) that the current financial state of the industry could also have a serious impact on India’s banking sector.
In the letter, dated February 23 (Mint has reviewed it), Deepak said the government’s licence fee collection in the current fiscal has fallen from ₹3,975 crore in the June quarter to ₹3,584 crore in the September quarter and ₹3,186 crore in the December quarter.
He expects this to decline another 10% in the March quarter. The annual spectrum usage charge revenues are also likely to face a similar decline, he added.
“The main reason for the downward trend appears to be a tariff war in the industry triggered by free promotional offers. This can have a serious impact on the financial health of the sector, affect its revenue growth, and in turn, its capability to meet its contractual commitments which include payments to the government of instalments for spectrum purchased in auction, and repayment of loans to financial institutions and banks.”
Deepak’s letter expressed the concerns of the Telecom Commis- sion, India’s apex telecom policymaker, which met on February 22.
The body, of which Deepak is a part, discussed the profitability of telcos. In the quarter ended December, most telcos saw a decline in profits as they scrambled to compete with the free services offered by Reliance Jio.
On February 21, Jio, which will start charging for data from 1 April (voice remains free) vowed to provide at least 20% more data to users on every tariff plan offered by its rivals, renewing concerns that the bruising price war in the world’s second largest telecom market by users is unlikely to end soon.
“The Telecom Commission also desired that in case Trai has a different interpretation of the above mentioned decisions/ directions, there appears to be an urgent need to revisit and review its tariff orders/decisions/directions in the larger interest of government revenues as well as the telecom sector...,” Deepak wrote.