Saddled with a debt burden of over ₹4 lakh crore, the country’s telecom sector is in for a major shake out, where several consolidation moves are in the works, according to Rajan S Mathews, Director General, Cellular Operators’ Association of India.

In an exclusive interaction with BusinessLine , Mathews said the sector with a subscriber base of over 1.1 billion is passing through one its toughest phases, having to contend with dwindling revenues and high debt burden to service, leading to accelerated phase of mergers in the sector.

“We have made representations to the government, seeking its intervention to sort out some of the pending issues, including regulatory. This will ease out some pressure on the sector and enable it to invest for future growth,” Mathews said.

Data revolution

“The voice revolution in the country is behind us and most of the areas have been covered barring some places in the North East and J&K, the latter due to security issues. The country is gearing up for accelerated data revolution. This phase is marked by huge challenges to the incumbent operators, whose revenue models were primarily based on voice tariffs,” he explained.

The 4G is going to be a dominant force that has stimulated demand for equipment and handsets. The entry of Reliance Jio with its free services has had significant impact on the existing operators.

“While the rest of the world has five networks (landline, mobile, satellite, cable and private/Government networks) to ride on, India is dependant mainly on mobile network. This means, there is enhanced need for spectrum for mobile companies to offer services. This calls for more investments. But the finances of operators are getting stretched,” he said.

“Vodafone-Idea are in news on their merger moves, and it will not be long before we learn about more such deals. After Reliance Communications-Aircel deal, the Tatas, Telenor are also expected to close in on some transactions. About three years ago, we had 12-14 operators in each circle. This has come down to five and shrinking due to consolidation moves.”

The pay as you go model has been changed after 2011 where spectrum is auctioned.

Given the challenges the sector is faced with now, debt servicing will become a major challenge. Unless the government addresses sector concerns be it for spectrum, or in the services space, the sector is in for tougher times.

GST impact

“We have asked government to reduce levies, which includes licence fee, spectrum usage charge. Operators are also concerned about the impact of GST on the telecom sector. We hope we are brought under lower slab or else this will be additional burden on the customers,” he felt.

“One of the important aspects is to allow telecom sector to raise tax-free bonds. This will enable operators to access funds at lower interest rate. Which can in turn be used to service the existing piled up debt. By cutting down on debt, operators will be able to invest further in upgrading networks,” he explained.

“The way out of the current crisis laden situation for the telecom sector is to reduce the cost burden on the industry and bring in regulatory certainty in terms of interconnect charges, and address issue of predatory pricing. All of which are having a huge bearing on the sector prospects,” Mathews said.

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