Telecom Industry’s Cash Deficit At Rs 1.2 Lakh Crore: Reliance Communications

Intense tariff war and high taxes are expected to squeeze Indian telecom operators, leaving a gaping Rs 1,20,000 crore deficit between the industry's earnings and its debt or payment commitments this year, says debt-laden Reliance Communications.

With annual interest payments, loan re-payment obligation, spectrum-related outgo and capex expected to add up to a Rs 1,62,000 crore tab, the operators could find it tough to meet their debt and payment needs with Rs 43,000 crore of EBITDA or operating profit in 2017-18.

Earnings before interest, tax, depreciation and amortisation (EBITDA) is a measure of a company's operational performance.

"The reduced EBITDA (Rs 43,000 crore in FY18) of the industry is insufficient to cover the existing debt obligations and deferred payment commitments," Reliance Communications cautioned in its latest investor presentation.

The gross liability of the telecom industry on account of debt as well as payments related to radiowaves amounted to a whopping Rs 7,75,000 crore, as on March 31.

Also Read: The Indian Telecom Industry's Debt Problem In Three Charts

Stating that 2016-17 recorded the first-ever decline in industry's revenue, Reliance Communications said the combined revenue went down to an estimated Rs 2.10 lakh crore. This resulted in fall in EBITDA by Rs 12,000 crore, meaning significantly lower operating cash flows for telcos.

"Further in financial year 2017-18, the revenue is estimated to decline further by Rs 25,000 crore," Reliance Communications said referring to the industry's weak financial metrics.

Reliance Communications Chairman, Anil Ambani last week stepped in to restore investor confidence after the company's shares were hammered in the wake of poor fourth quarter and financial year 2016-17 showing, and debt downgrade by rating agencies including Moody's, Fitch, ICRA and CARE.

In a rare public appearance, he said that the debt-laden Reliance Communications has been given a breather of seven months to service its debt.

This is a part of a strategic debt restructuring (SDR) programme that a consortium of lenders has invoked for the company, that is saddled with Rs 45,000 crore debt.

Also Read: The Story Behind Reliance Communications' SDR

Like its larger rivals, Reliance Communications too has been hit hard by intense price war unleashed by Reliance Jio, owned by Anil Ambani's elder brother and India's richest man Mukesh Ambani.

Reliance Communications presentation noted that the voice revenue per minute for the industry has seen a 25 percent decline in the last two quarters, while data revenue per MB have fallen by 40 percent.

It cautioned that the sector could be staring at 30,000 to 40,000 job losses over the next 12-18 months, compared to 10,000 job cuts last year.

Underlining the high incidence of taxation, Reliance Communications said telecom is "one of the highest taxed sectors" of the Indian economy and that no other country in the world has such high tax burden on telecom sector.

The cumulative tax incidence adds up to about 33 percent (of revenue) in India compared to 20 percent in European Union, 22 percent in China and 17 percent in the U.S.

Incidentally, India, with over 1.16 billion mobile users is the second largest telecom market in the world, after China.

Also Read: Mary Meeker Internet Trends 2017: India's Mobile Obsession, Reliance Jio's Disruption

Noting that the government has set up a panel to resolve the financial crisis in the telecom sector, Reliance Communications said industry wants deferment of payment liability with respect to levies (imposed by the Telecom Department) and spectrum charges by three years.

The industry also wants a three year moratorium on service tax/GST, for short term cash flow relief. Other demands include reduction of licence fee to 5 percent (from 8 percent), and flat one per cent spectrum levy.

Interestingly, at a time when telecom regulator is reviewing the call connect charges, Reliance Communications said that termination rate should be discontinued, given the free or low voice tariffs environment.