Ankit Jain, Assistant Vice President, Corporate Ratings, ICRA Limited
The ongoing outbreak of Coronavirus has been impacting major parts of the world not only transpiring to economic weakness but also taking a toll on the health of the people. India announced complete lockdown effective from March 25, 2020, which resulted in lots of industries coming to a standstill. India Inc. started working from home resulting in increased usage of telecommunication services, both in terms of voice and data, while there was some revenue lost in terms of lack of physical recharges and limited new subscriber addition. Telecom being categorised as an essential service, has been functional even during this lockdown and has been playing an important part in the functioning of the economy. Thus, ICRA expects limited impact of the Covid pandemic on the operating and financial performance of Indian telecom industry.
There has been a sharp fall in the monthly customer addition during March 2020, which is expected to continue till the lockdown prevails and even after that, till the free movement remains constrained. Even mobile number portability (MNP) requests have witnessed a decline due to mandatory physical presence of the customer for completing the know your customer (KYC) requirements. Moreover, the revenues of the telecom operators are also likely to be impacted on account of lack of physical recharges which were a norm for a sizeable portion of population living in rural/remote areas. Further, the telecom operators have granted additional talk-time to low income customers and have also extended the validity of the prepaid recharges till April 17 to allow continuation of incoming facility. These are expected to exert some pressure on the revenues of the telcos over the ongoing quarter.
Notwithstanding these revenue pressures, the mobile usage has increased significantly not only due to the work from home regime, but also on account of increased data usage for watching videos, content, increased time on social media, etc. Fixed broadband traffic has also witnessed an increase due to features like home working, remote schooling, content watching, etc. Thus, there is a quantum of some subscribers which has upgraded the plans to include more voice/data to their mobile plans and/or increase the speeds/data limits in their fixed broadband plans resulting in ARPU up-trading. Further, with physical recharges being unavailable, there has been a shift towards digital recharges, which in turn leads to reduction in dealer commission and thus, improved profitability for telcos to some extent. ICRA expects a revenue growth of 18 per cent in FY2021, while the industry EBITDA is expected to grow by 21 per cent to Rs. 75,000 crore, on the back of the tariff hikes announced in December 2019 and increasing usage.
While increased usage is a positive for the industry, it also exerts pressure on the network capacity. Thus, telcos are prioritising their investments to keep the 4G networks and the fixed line networks up and running and focusing on their network capacity to tackle the sudden increase in data consumption and ensure uninterrupted mobile broadband connectivity to its customers amid the nationwide lockdown. Further, the telcos have also tied up with ATMs, pharmacies and grocery stores to enable recharges for the customers, which are solely dependent on physical recharges.
Moreover, apart from the financial aspect, there are other issues which can also impact the industry. Remote working increases security and infrastructure related risks for the telcos as well as their customers. Excessive demand of mobile and communications networks, especially in terms of usage could impact the service quality and can impact the telco’s brand in the coming times. The availability of equipment – customer equipment (including mobile handsets) and other network equipment has been impacted which can defer the network deployment and customer upgradation. Further, the deployment and testing for 5G, which has been delayed on account of elevated debt levels of the telcos and limited ecosystem around the band, can get deferred even further due to the ongoing situation.
