Spectrum Auctions to Put Extra Financial Burden on Telecom Industry: ICRA

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The recent depreciation in rupee and higher prices of diesel are expected to further hit the telecom industry in the country

With telecom industry in India already grappling with elevated debts, the auction of spectrum would put an additional financial burden on the industry as it requires more spending, credit rating agency ICRA said on Tuesday.

Though the government has not yet announced the time for next spectrum sale, Telecommunication Secretary Aruna Sundararajan had said the sale of 5G spectrum is likely to take place in the second half of next year.

The rating agency kept the year-end outlook to negative for telecom sector. It said that pricing restoration and stabilisation are not imminent as the competitive headwinds remain robust with most of the telecom operators looking for more entrenchment or an impetus for higher share of customers in the market.

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It further said that the recent depreciation in rupee and higher prices of diesel are expected to have further hit the telecom industry in the country.

Delay in recovery

The telecom sector’s much-anticipated recovery, supported by pricing power restoration, may be delayed as the severe competition in the industry is likely to continue, said ICRA.

Due to the entry of Reliance Jio Infocomm in September 2016, the telecom sector has faced the brunt of intense competition, which resulted in erosion of earnings and revenue and consolidation, the rating company said.

The much-anticipated recovery on the back of a consolidated structure of industry and more usage of data with higher price-inelasticity has also been extended,” it added.

Increased debt levels

The telecom sector’s debt continues to be elevated because lower generation of organic cash flow and constant high capital expenditure needs and the decline in rupee value also has added to debt levels, it said.

The rating agency expects the industry’s debt will come down to Rs 4.2 lakh crore from the projected Rs 4.7 lakh crore in March 2018, on the back of promoter support and monetisation of tower assets.

The volatility in pricing had led to a erosion of profitability and revenue. The constant downward prices revision resulted in one of the sharpest declines in industry’s average revenue per user (ARPU) levels. Combined ARPU, from voice as well as data services, is likely to decline to Rs 116 in the first quarter of 2018-19 fiscal from Rs 169 in the same quarter of 2016-17. The adjusted gross revenue of telecom industry may drop to Rs 25,580 crore in the said period from Rs 44,570 crore.

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