Even as Airtel, Vodafone Idea and Jio hiked tariffs in December, industry experts expect that a second round will commence at the beginning of the first quarter of next year.

Telcos expected to pay up Rs 92000 cr in AGR dues Will mobile bills increase
Money Telecom Crisis Tuesday, January 21, 2020 - 10:55

With the Supreme Court’s deadline for companies to pay their Adjusted Gross Revenue (AGR) dues fast approaching, telecom companies have decided to approach the court again, seeking a negotiation over the payment plan to pay off the mammoth Rs 92,000 crore they owe.

The telecom industry, which was already going through a rough phase, was hit by the Supreme Court’s verdict to pay the mammoth amount, which saw Bharti Airtel and Vodafone-Idea report record losses. 

Internal turmoil surrounding falling revenues, followed by uncertainty over interconnected usage charges (IUC) and then the AGR verdict, led to all three major operators hiking their tariffs. With the AGR verdict, telecom companies have to shell out a lot of money, which they tried to by challenging it with a review petition, which has now been rejected. 

AGR was a 14-year-long battle, which culminated in October 2019. The problem originated when telecom operators migrated to a new system offered by the government in 1999, under which they agreed to share a certain percentage of revenue with the government. Operators argued that AGR should comprise only revenue from telecom services, but the DoT insisted that it should include all revenue earned by an operator. It is because of this that Rs 92,000 crore is owed in dues to the government. 

Now, payment is very much on the table. According to Rajan Mathews, director of the Cellular Operators Association of India, the companies will not contest the dues and with their review petition being rejected, will have to pay. But without intervention, it is possible that mobile bills will go up very soon.

One of the things that changed when Jio entered the market was that it drove down the Average Revenue Per User (ARPU) per month. This is the average amount of money that a telecom operator expects to earn from each consumer — something which telecom operators are now trying to increase. Rajan Mathews said that from the current ARPU around Rs 124, it needs to move up to Rs 300 in the next two years.

“Tariff increases are an ongoing matter, which the industry is more or less committed to, given the issues. One round of tariff increases is already in place, and we expect that a second round will commence at the beginning of the first quarter of next year,” he said.

“Over two years, we should expect tariffs to increase because that’s what it will take to make the payment obligations with the government,” he added. 

Sanjiv Bhasin, director at IIFL Securities, told ET that with ARPU’s being low, there is scope for telecom companies to hike their tariffs by 30% this year. This is after tariffs were increased by 14-30% in December. 

Another matter that could lead to an increase in tariffs is a consultation paper released by the Telecom Regulatory Authority of India (TRAI) on the setting of floor prices, for which it is inviting views till the end of February. The consultation paper, which was issued on December 17, asks if the regulatory body must set a base price below which telecom operators cannot offer packages and even a methodology for how this floor price is to be determined. 

A floor price will also mean higher tariffs for mobile users.

However, Rajiv Sharma, the Head of Research at SBICap Securities, says that the current tariff hikes will have to be absorbed. 

“The AGR payments telcos have to make now doesn't have anything to do with tariffs. The tariff hikes that have happened will first have to be absorbed. And it may take six-seven months. As such we won't see any more hikes in the near future. If the situation doesn't get better in medium to long term, they may go for another round of hikes, but currently, there won't be additional hikes,” he said. 

Telecom analyst Kunal Bajaj says that tariff hikes will not be sufficient, as there is a fundamental problem that telecom operators need to overcome. 

“The tariff increases that they've announced already are going to be there but to expect for them to go beyond that, or for them to be able to recover these dues by just doing a tariff hike is going to be very difficult,” he said. 

According to Kunal, the existing measures undertaken by telecom operators would help them with at least a 10-15% hike in ARPU. Meaning, with the telecom operators hiking tariffs in December, their average revenue from each customer will go up by 10-15%.

“If one could create a fairly healthy environment with a 15% average increase in ARPU across the board, but one also has to look at other things such as the right taxation, looking at the right price for 5G options, and when is the right time to have 5G options, etc. A 15% ARPU increase can be sufficient to return the sector to a healthy operating environment, but one has to see what are all the other policy things that come along with it,” Kunal said. 

For now, the telecom sector wants to go back to the drawing board with DoT and renegotiate payment terms. Airtel, Vodafone Idea and Tata Teleservices have moved the court to renegotiate payment, and have sought an urgent hearing on Tuesday, prior to the January 23 deadline.

The CJI has reportedly agreed to list a plea by the telecom companies  next week before J Mishra. This would give the telcos more time towork out a payment plan with the government and will for now help them move past the January 23 deadline. 

It now remains to be seen how the government and the Supreme Court helps the telcos make these mammoth payments.

Also read:Vodafone Idea stares at crisis after SC dismisses AGR review plea

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