After posting a combined loss upwards of Rs 79,000 crore in the second quarter, Bharti Airtel and Vodafone Idea have decided to hike tariffs from December. Airtel also said that the Telecom Regulatory Authority of India (Trai) will likely initiate a consultation for "rationality" in pricing, confirming a CNBC-TV18 report. Nitin Soni, director-Asia Pacific TMT at Fitch Ratings, shared his views and outlook on the telecom sector in an interview with CNBC-TV18.
Soni said the amount of regulatory unpaid dues is significantly large and it poses a question of survival for Vodafone Idea.
“Although it’s positive that both the incumbents have announced to raised tariffs effective from December 1, but the benefits of increased tariff will only come in the medium-term and will be realized fully in Q4,” he said.
“However, it may not offset the large regulatory unpaid dues which they have to pay within three months. So if Vodafone Idea do come out of the financial distress then the government will have to step in and provide some kind of a relief to the sector."
>> Telecom tariff hike: Vodafone Idea surges 10%, Bharti Airtel up 4%; brokerages bullish on Airtel
On Vodafone Idea's survival, Soni said: “There are a number of issues which the government can address. We have been saying that the levies and the taxes which telcos pay is one of the highest in Asia Pacific region. They not only pay high spectrum payments in the auctions but they also share 8 percent of licence fee and 3-5 percent of spectrum usage charges.
“We believe that for this industry about $5 billion of GST [goods and services tax] input credit is still stuck with the government and telcos have also appealed the government to allow them to offset the GST for the adjusted gross revenue (AGR) dues,” added Soni.
On the revenue front, Soni said: “If there is an increase in tariff by 10 percent then that will increase their revenues by $400-500 million, but the growth in EBITDA [earnings before interest, taxes, depreciation, and amortization] would be larger because this is a business which has a high operating leverage.”