The entry of Reliance Jio on September 5 last year has forced incumbent telecom firms to cut voice and data tariffs and the stiff competition, price war and reduced revenue has trapped telecom into a highly leveraged sector, part two of the Economic Survey for 2016-17 said.
The survey also said it's worrying that the share of the telecom sector in non-performing assets (NPAs) has now increased.
"Though the total NPAs of telecom sector in public sector banks has fallen to Rs 2,335 crore in 2016-17 from Rs 3,456 crore in 2015-16, the share of NPAs of infrastructure sector increased to 8.7 per cent in 2016-17 from 5 per cent in 2015-16," the survey said.
The survey said the industry also faces the issue of higher spectrum charges.
The adjusted gross revenue of the top three telecom companies in India Bharti Airtel, Vodafone and Idea Cellular decreased by 7.98 per cent, 5.14 per cent and 4.91 per cent respectively during Q3 of 2016-17 as compared to its previous quarter.
With the introduction Reliance Jio, the competition extended from cheaper calls to cheaper data. Reliance Jio recorded the highest net addition of 56.2 million subscribers which is much higher than the others service providers like Idea with 11.7 million and Bharti Airtel with 5.9 million subscribers during Q3 of 2016-17.
The survey said the telecommunications sector has experienced its own version of the "renewables shock" in the form of a new entrant that has dramatically reduced prices for, and increased access to, data, thereby benefitting-at least in the short run-consumers.
But like with the renewables shock, the near term implications for the viability of incumbents are serious: their profitability has come down dramatically. After launching of services by the new entrant in September 2016, the average revenue per user (ARPU) for the industry on aggregate has come down by 22 per cent vis-?-vis the long term (December 2009-June 2016) ARPU, and by about 32 per cent since September 2016.
For this reason, Credit Suisse estimates that the share of telecom debt owed by companies with an interest coverage (IC) of less than 1 has more than doubled since late 2016, climbing above 55 per cent, with an associated vulnerable debt of Rs 1.5 lakh crore.
"In the telecommunications case, not only is the banking system exposed but so too is the government to whom the companies owe a variety of fees and taxes," the survey said.
As per the survey, the mobile industry in India, currently contributes 6.5 per cent ($140 billion) to country's GDP, and employing over four million people (direct and indirect).