Economy

Set floor tariff, urges telecom sector

Ayushi Kar Mumbai | Updated on August 02, 2021

TRAI had issued a consultation paper on setting floor tariff, but there has been no further movement on the issue   -  Getty Images/iStockphoto

Telcos staring at huge AGR dues, spectrum payments, 5G rollout, says industry body

As major telcos are looking to improve their revenues, there is a consensus amongst industry experts that fixing a floor price is necessary for the much-needed capital infusion into the cash-strapped sector.

Analysts contend that this money is necessary for the struggling telcos not only to pay Adjusted Gross Revenue dues running to thousands of crores to the government and make spectrum payments, but also much needed to invest into rolling out 5G network.

SP Kochhar, DG, COAI, told BusinessLine “In the last few years, the telecom industry has witnessed strain due to substantial losses. Despite the stress, telecom service providers have invested in networks to drive digital adoption across the country and kept India connected during the pandemic. The healthy financial state of the sector is now critical for driving the digital economy. Floor pricing is the immediate need of the hour to restore the health of the sector. In fact, the COAI has made repeated pleas to set a floor price.”

Consultation paper

The Telecom Regulatory Authority of India had issued a consultation paper on this issue but there has been no further movement.

Mobile tariffs are under forbearance currently but there is pressure mounting to fix a floor tariff. TRAI did not respond to an email query sent by BusinessLine.

According to Prashant Singhal, Global Telecommunications Leader at EY, it is extremely necessary for tariff prices to increase, especially in order for telcos to have enough capital to invest into upcoming 5G technologies “this is not just a question of insolvency anymore, operators need funds for the massive capex that the 5G rollout will require. The industry needs to increase tariff rates one way or the other, either through a floor pricing regime over the cost of service or by bringing up prices themselves” Singhal said.

Average revenue

While Airtel recently increased its tariffs, the biggest beneficiary of a floor price would be Vodafone Idea. According to industry executives, floor price could help push average revenue per user by 20-25 per cent which will help Vodafone Idea to improve its cash flows.

The operator is staring at an uncertain future as the deadline to pay its AGR dues is eight months away.

Telecom expert Hemant Joshi also believes that a floor price regime is necessary, “For the past few years telcos have applied a race to the bottom pricing model in order the gain as much market share as possible, in which case a government-mandated price floor will ensure that they are able to cover their cost of service,” Joshi said.

Regarding the consumer impact of such a policy Singhal believes that with price inflation across segments, the impact of an increase in telecom tariffs will be relatively small, Singhal felt.

Published on August 02, 2021

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