No respite to telecom sector woes
Voice and Data|January 2020
No respite to telecom sector woes
With the AGR dues overweighing green shoots of deleveraging and restoration of pricing power, the Indian telecom industry will continue to reel under pressure

Ratings agency ICRA has maintained a negative outlook for the Indian telecom industry, where major companies will have to repay massive dues to the department of telecommunications (DoT) after the Supreme Court (SC) verdict in the adjusted gross revenue (AGR) case.

The negative outlook for the sector, until the end of financial year 2019-20, comes in the backdrop of the apex court order of 24 October 2019, in the 14-year-long dispute over the definition of AGR between the DoT and telecom companies, asking the telcos to pay the dues within three months.

ICRA maintains that the dues, including the interest and penalties, is sizeable and the outflow towards these payments will create additional pressure on the balance sheet of the telecom operators, particularly since it has come at a time when the industry’s health is on a recovery track, on the back of deleveraging initiatives, moderation in capex intensity and restoration of pricing power.

The sector has passed through a phase of turbulence during the last few years, with intense competition and pricing pressures leading to a decline in revenues and profitability. Consistent downward revision in prices resulted in one of the steepest falls in the industry average revenue per user (ARPU) levels with the estimated blended ARPU falling from Rs 169 in Q1 FY2017 to Rs 124 in Q1 FY2020; the industry adjusted gross revenue (AGR) fell from Rs 44,570 crore to Rs 28,650 crore in the same period. The overall high operating leverage of the industry also meant that the decline in revenues percolated to pressure on profitability and cash flow.

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January 2020