India’s telecom sector, which has been grappling with huge debts and massive regulatory headwinds for the past few years, has received investments of ₹1.42 lakh crore in the last six months. All the four mobile operators have received some form of funding, which indicates that investors continue to bet on the once poster boy of economic reforms.

Big bets

The biggest investment from a private entity has come from Mark Zuckerberg-backed Facebook, which took 9.9 per cent stake in Reliance's Jio Platforms for ₹43,574 crore. Jio Platforms has also received ₹5,655 crore from US private equity giant Silver Lake. Both these investments will help Mukesh Ambani to bring down the debt in his telecom venture, Reliance Jio, to zero by March 2021. 

There could be more stake sale by Jio, giving it enough headroom to undertake the next big rollout of 5G networks.

Before that, in January, Airtel raised ₹21,500 crore through a mix of Qualified Institutional Placement and Foreign Currency Convertible Bonds. Airtel termed it as the largest ever dual-tranche equity and FCCB offering in the Asia-Pacific. Nearly 15 global investors participated in this fundraising, including Warburg Pincus, Fidelity, BlackRock, Goldman Sachs, Lombard Odier, Citigroup, Schroder, Segantii Capital, Barclays, JP Morgan, UBS and BNP Paribas.

Fresh funding would take care of the operator’s immediate liabilities, including payouts related to adjusted gross revenue to the government and refinancing of existing loans. Airtel has recently bought 4G equipment worth $1 billion from Nokia showing its intent to go aggressive on network rollout.

State-run BSNL also received ₹70,000-crore relief package from the government in October 2019. BSNL has shed nearly 90,000 employees through a VRS scheme and has embarked on a ₹9,000-crore network expansion plan.

But there are still structural and administrative issues facing the public sector telecom company. The additional funding gives it a sliver of hope to survive.

Vodafone Idea is yet to receive any significant funding, although Vodafone Plc recently gave ₹1,530 crore to its Indian joint venture in a bid to meet immediate cash requirements. This puts Vodafone Idea in a precarious position, as it requires at least ₹50,000 crore to stay afloat.

Looking ahead

The sector is still not of the woods. Over 10 telecom companies have shut down operations in the last few years. A debt of over ₹5 lakh crore and AGR dues of ₹1.3 lakh crore has to be paid. The future of BSNL and Vodafone Idea is still uncertain. Regulatory fees and spectrum pricing continues to be high. The growth in data consumption will have to translate into higher revenues for the operators. The average revenue per user is still hovering around ₹15-160 a month despite recent tariff hikes.

But the key takeaway from the investments coming in over the last six months is that India’s telecom market still holds a lot of promise. More than 50 per cent of the market is still not connected by data services. Those who do have access to Internet services, are consuming data like never before.

Although the current data pricing is still low, tariffs will only go up from here on. The telecom regulator is discussing the possibility of introducing a floor price. The financial stress on the telecom companies will ensure there’s no tariff wars. Higher tariffs mean better revenue for the operators.

The recent lockdown due to the coronavirus has brought Internet access under the spotlight. Millions have been able to buy essential commodities, do financial transactions, watch movies and catch up on news; and work from the comforts of home only because of reliable telecom networks. Even after the lockdown gets lifted, many companies and individuals would prefer to work from home.

Telecom networks are clearly at the heart of our digital future. While most sectors are grappling with a huge decline in business, telecom is slated to grow by 15-20 per cent amid the economic slowdown. This is great news for telecom operators, who have been fighting for survival amid declining revenues, mounting losses, and climbing debts.

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