The fiercely competitive price war underway in India has prompted the country’s Department of Telecommunications (DoT) to request that the finance ministry dramatically reduces its non-tax revenue collections from operators for the current fiscal year.
With heavy operating losses and increasing debt, India’s telecoms sector is under increasing pressure – particularly following the entry of 4G provider Reliance Jio to the market. The newcomer’s free voice and data promotions have kicked off a ‘race to the bottom’ tariff war between operators in a bid to retain their subscribers.
The trend towards massive discounting has resulted in the DoT forecasting a 37% drop in revenue collected from operators for the fiscal year ending 31st March 2018, down to INR295 billion ($4.59 billion). Over the previous fiscal year, the sector brought in INR787 billion in non-tax revenue for the federal government. Revenue from spectrum usage is expected to drop 35% to INR170 billion, while licence fee revenue will almost halve to INR92.6 billion.
Writing to the secretary of economic affairs, the DoT finance unit’s Anuradha Mitra said that even if the government presses ahead with its proposed spectrum auctions this year, it will likely see no revenue on the sales as operators have no appetite for an auction given how stretched they are. Therefore, they would be likely to abstain from bidding.
“In view of the severe financial stress in the sector and rapidly declining revenues of all major telecom service providers, revenue targets for DoT for budget estimates 2017-18 will actually require a downward revision,” said Mitra.
With heavyweight operators including Bharti Airtel and Idea Cellular both registering major losses in the January to March quarter, regulator TRAI has been petitioned by service providers to stipulate a minimum price for voice and data. The request seeks to outlaw the practice of providing tariffs that do not cover the costs of service – which has thus far been Reliance Jio’s modus operandi.
If TRAI (Telecom Regulatory Authority of India) clears the request, then operators may no longer be able to offer free services to their users. Unsurprisingly, Jio – which attracted 100 million subscribers within five months of its September launch – is against the proposal, as it has been heavily reliant on free voice and data offers to build up its subscriber base.
Jio has said that it will continue to deliver free voice services for its lifetime as an operator. It only began charging for data in April, and its practices have been defended by TRAI. The regulator previously stated that Jio’s tariffs are in keeping with industry norms.
TRAI chairman Ram Sewak Sharma said “the floor price of a commodity will depend on multiple variables, technology, utilisation of network, volumes, etc. So, it’s a complex issue of operationalising this principle. This is a new idea, we will have to deliberate on it.”
However, the intense competition spurred by its market entry is having a knock-on effect, with Reliance Communications claiming last month that India is seeing declining revenue for the first time in 20 years. It registered an INR9.66 billion ($149.9 million) loss in its most recent fiscal Q4, compared to a profit of INR900 million in same period a year prior.
RCom co-CEO Gurdeep Singh has proposed that TRAI revise the way that it calculates adjusted gross revenues, as this would bring down licence fees and spectrum usage charges to ease the pressure on operator revenues. He also noted that since the industry is increasingly abandoning per-minute and per-gigabyte billing, interconnect usage charges should be scrapped.