Rating agency ICRA in its latest report has said that the relatively shorter payment timeframe of 10 years that has been granted to telecom companies (telcos) for payment of Adjusted Gross Revenue (AGR)-related dues will exert additional pressure on the cash flows, necessitates sizeable Average Revenue Per User (ARPU) hike, and may have longstanding impact on industry structure. ICRA said it would also leave limited room for network capital expenditure (capex) and expansion, especially for the relatively weaker player.
Assuming these payment terms are implemented on the balance amount to be paid, the report said the telcos will have to shell out an amount of Rs 9,000 crore by March 31, 2021 as upfront payment, followed by 10-annual installments of around Rs 12,000 crore at 8 per cent rate of interest starting February 2022 till February 2031. It also said these dues arose after the Supreme Court, in October last year, upheld the government's position on including revenue from non-core businesses in calculating the annual AGR of telecom companies, a share of which is paid as licence and spectrum fee to the exchequer.
According to the report, the telecom industry, after witnessing a turbulent phase with intense competition and pricing pressures, was on a path to recovery. It also said telecom operators announced substantial tariff hikes in December 2019, which along with moderation in capex intensity and deleveraging initiatives pointed towards greenshoots of recovery in the sector that was expected to result in expansion in cash flow generation. It noted that the tariff hikes have led to restoration of pricing power to the telcos and aided improvement in the operating metrics of the industry with growth in revenues and profit margins. It further said that the industry has been saddled with elevated debt levels amid consistently high capex requirements.