Industry chiefs of India’s telecom sector held a meeting with the country’s telecom minister to discuss the financial stress faced by the industry and the latter has assured that the government will take remedial steps.
Sunil Bharti Mittal, chairman of India’s leading telecom company Bharti Airtel, has reportedly warned that cutthroat price war in the telecom sector will decimate many existing players. During a meeting with India’s telecom minister Manoj Sinha on Thursday, he pointed out that the current tariffs are pegged well below the cost and if current levels of competition persisted, only one or two private sector companies will be left in the market, reports Economic Times.
“Earlier, there were 12 operators. We’re already down to six-seven. An operator with a strong balance sheet is shaking the industry, and the way it is going, it would be down to around three-four, including (state-owned) BSNL and MTNL,” Mittal said, the daily added.
Apart from Mittal, Reliance Group Chairman Anil Ambani, Tata Sons Director Ishaat Hussain, Reliance Jio board member Mahendra Nahata and Idea Cellular Managing Director Himanshu Kapania presented their views to the minister.
The entry of Reliance Jio Infocomm Ltd, owned by India’s richest man Mukesh Ambani, has disrupted the sector with free voice and low data rates, leading to a tariff war that has worsened the financials of the debt-laden industry and prompted the government’s meeting with companies and lenders.
However, Reliance Jio’s representatives at the meeting said the industry’s revenue will eventually double to Rs 4 trillion from Rs 2 trillion and disputed claims of any stress. They countered Mittal’s claim and said, “To say that Reliance has a strong balance sheet and that’s why they can give low tariffs, is a complete misnomer. Jio has invested Rs 2 trillion in the venture and it has a definite business plan.”
The telecom minister assured the telecom sector it would take corrective steps to ensure growth, and deal with financial stress and declining revenues.
The financial stress faced by telecom companies has also affected the revenue inflow to Government exchequer. Recently, Department of Telecommunications (DoT) has expressed its inability to meet its revenue target of Rs 473 billion (US$7 billion) for FY18 and has asked the finance ministry to lower it to Rs 295.24 billion (US$4.5) billion.
Telecom companies pay 8% of their revenues as license fee, and 3-6% of the adjusted gross revenue as spectrum usage charges to the government. With the financials of most companies in poor shape, the inflow to DoT has also correspondingly fallen.
Banks too are worried about telecom sector stress as they have huge exposure to these companies and fear the possibility of loan defaults.