These are probably the most challenging times for the Indian telecom sector. Even as the number of data users grows at a rapid clip, telecom operators do not have much to cheer.
A major financial crisis is in the making as the Indian telecom industry sits on a debt pile of Rs 4.6 trillion, with no hope of recovery. Bharti Airtel’s profits for the year 2016-17 have nosedived, while RCOM and Idea Cellular have reported an annual loss for the first time in many years.
The industry’s debt has been growing for some time now. In fact, the consolidation efforts in the past two years have been a self-correction mechanism to deal with the issue. However, the industry had clearly not anticipated the adverse impact of RJIL’s entry and free services on their top lines.
The debt burden in the last two quarters has compounded to a level that the industry’s survival is in jeopardy. Of course, some of this is the incumbent operators’ own doing. It is a well known fact that the telecom industry is highly leveraged, and most operator network roll-outs and service expansions have been funded through debt rather than equity infusion. In recent rounds of spectrum auctions, operators have acquired airwaves at unreasonably high prices, which, in turn, have stretched their balance sheets.
With no immediate signs of revival, the industry has turned desperately to the government for a possible bail-out. Remedies such as extending the period of repayment for deferred spectrum charges and reducing the licence fee and SUC have been suggested as the part of the package.
Banks are echoing a similar sentiment and have flagged the possibility of defaults by operators at a meeting with the inter-ministerial group that is looking into the matter. They have urged a liquidity boost in the troubled telecom companies through the dilution of promoter equity, amongst other measures.
The telecom industry, which connects a billion users, has a paramount role to play in realising the government’s Digital India vision. This, in fact, makes it even more imperative for the government to step in and pull the sector back from the brink.