‘Final straw for already distressed telecom sector’

SC order will affect fund-raising capacity of telcos: industry

Terming the Supreme Court judgement over calculation of adjusted gross revenues as the last straw in contributing to the financial distress of the telecom sector, the industry and analysts on Thursday said the move will negatively affect the fund raising capacity of telcos, impacting broadband and network expansion in the country, along with the government's flagship Digital India initiative.

With the SC ruling in favour of the government, telecom companies will need to pay up about ₹92,000 crore in dues to the government.

The order will dampen the sentiment of telecom operators and, raising funds for broadband, network expansion and Digital India will hit a significant roadblock, Prashant Singhal, Emerging Markets, Technology, Media and Telecom leader at EY said. He added that the impact will not be limited to operators but will have a domino effect on the larger digital value chain.

Rajan S. Mathews, Director General at industry body COAI, said it remains to be seen whether the industry will be able to recover from this setback. He added that the taxes and levies in the Indian telecom sector, ranging from 29% to 32%, are one of the highest globally.

“The sector has the lowest tariffs in the world backed by the investment of over ₹10 lakh crore in setting up mobile networks over the last 20 years but is going through one of its most disruptive phases. The sector is already reeling under a daunting debt of about ₹4 lakh crore and is in dire financial straits as operators are making negative returns on their investments. The telecom EBITDA continues to contract, while the interest expense of the Industry continues to increase,” he said.

Vodafone Idea, whose shares tanked 23.26%, as its entire cash balance of about ₹21,000 crore at the end of June may be wiped out as a result of the SC order said the judgment had ‘significant damaging implications’ for the industry. Noting that the order has huge impact on two private operators while most of the other impacted operators have exited the sector, the firm said it would study the ruling to determine next steps. “If there are technical or procedural grounds for doing so, this could include a review application,” it added.

An Airtel spokesperson said, “The definition of AGR has been a long-standing dispute between the DoT and the telecom service providers dating to 2005... This decision has come at a time when the sector is facing severe financial stress and may further weaken the viability of the sector as a whole. Of the 15 old operators impacted by the order, only two private operators remain today. The Centre must review the impact of this decision and find ways to mitigate the financial burden on an already stressed sector.”

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Printable version | Jun 2, 2020 9:28:22 PM |

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