Refuting the claims by Reliance Jio, the incumbent operators today stressed that they are making massive investments in infrastructure and infusing equity from operating cash flows rather than relying on raising debt alone.
The incumbents including Bharti Airtel, Vodafone, Idea Cellular and Telenor met the inter-ministerial group today and presented their point of view and facts around the condition of the telecom sector. The panel was formed to resolve the financial stress of the sector, which has been plagued with a debt of around Rs 4.5 lakh crore and profits are going downward.
The telcos said ever since Jio has launched services, the new entrant has adopted a predatory pricing approach, specifically aimed at winning market share.
As per sources, the telcos said with silent launch, Jio started testing its services in December 2015 and by September, 2016 it had already acquired more than 6.5 million customers through private distribution of SIMs. "Jio launched its services for "free" on September 5, 2016 on commercial basis and acquired more than 120 million customers. Even after 10 months of launch, a majority of Jio customers are being served for free and from April, 2017 onwards, it has been providing 4 months service at price of one month," the telcos said.
Jio, owned by Mukesh Ambani, is believed to have told the panel of officials that the financial stress had been caused by the old operators themselves as they did not invest in equity or in new technology but kept on piling debt.
However, the incumbents today shared their numbers in front of the panel regarding investments and debt raised. As per the presentation by Airtel, the operator has made a capital expenditure of Rs 1.25 lakh crore from FY12-17, of which Rs 46,000 crore has been raised as debt and Rs 79,000 crore worth of equity has been infused from operating cash flow.
Similarly, Idea Cellular said since FY14, it has made a total investment of Rs 77,127 crore, of which Rs 38,484 crore is from debt and Rs 38,643 crore is from funding via equity and internal accruals.
The incumbents said in the face of price war due to Jio, the industry revenue has declined more than 20 per cent over the last 3 quarters and in line with the revenue, net income has also declined sharply. The old telcos also said the government has suffered an annualized loss of Rs 10,000 crore due to dropping revenues.
Also the telcos said financial stress could lead to a reduced ability to service loans which might result in NPAs.
Airtel said it has stepped up investments in its business, capex Investments (excluding spectrum) have reached an all-time high of Rs 14,497 crore, which is 23.3 per cent of FY17 gross revenue. By comparison, global telecom operators have invested Capex between 13-14 per cent of revenue (AT&T 13.4%, Verizon 12.8%, Vodafone UK 14.7%).
In order to improve profitability, the operators sought to fix the interconnect usage (IUC) regime and the charges should now be fixed on a "full cost" basis, rather than 14 paisa, which is lower than the actual cost. The operators have sought IUC charges should be around 30 paisa per call, sources said. Jio and Reliance Communications though demand to bring the charges to zero.
The incumbents also refuted Jio claims that spectrum price has increased due to deferred payment liability. Sharing data, they said price of spectrum in 900 MHz band had increased in 2015 and that too because of aggressive bidding by new operator. They had to bid for 900 Mhz spectrum because of continuity of services.
Other demands include setting up of floor price for voice and data services, reduction in levies, a reduced GST rate and ease of doing business.