Indian Govt Diving Deep in Telecom, What It Means for the Sector

Indian Government

The Government of India (GoI) has been at the forefront and actively helped the telecommunications sector, which was severely stressed due to the low average earnings per capita. user (ARPU) and huge amounts of statutory fees on each trip.

One of the biggest effects that all government help will have on the telecommunications sector is that it will avoid any scenario of duopoly between two of the best private operators.

“The direct implication of the government rescuing operators is that to some extent it relieves the financially strained telecommunications sector, saves the market from shrinking to duopoly and supports India’s digital ambitions,” said Charu Paliwal, analyst at Counterpoint Research. TelecomTalk.

The government is not expected to play a major role in the operation of private telecommunications companies

Through a FAQ, the Indian government has already shared its intentions not to get involved in the operation of private companies, even though it has equity.

Ankit Jain, Assistant Vice President & Sector Head, Corporate Ratings, ICRA told TelecomTalk that the government is likely to monitor performance closely and take a divestiture call if the situation looks to improve.

“We do not expect the government to play a greater role in the operation of these telecommunications companies, but performance will likely be monitored more closely and a call for divestiture will be taken when the situation appears to improve,” Jain said.

However, there is no way to understand how investors / shareholders will perceive that the government has a significant share of the companies yet.

“How investors view this stock change and how this affects the fundraising exercise is still unknown,” Jain added.

For the ignorant, Vodafone Idea (Vi), the third largest telecom operator in the country, and Tata Teleservices, a telecommunications solutions company, had taken the opportunity to convert their statutory debt into equity for the government. This allows telecommunications companies to get rid of their debt, but also allows the government to get a significant stake in the private companies.

By accepting the share conversion, Vodafone Idea will probably have to give up a 35.8% shareholding in the company, which will make GoI the largest shareholder in the telecommunications company. In addition, Tata Teleservices will also have to give up 9.5% of the company’s ownership interest to the center by choosing the share conversion option.

The government has already clarified its intentions not to turn private companies into public entities (PSUs).

The government wants more pressure by taking a stake in the telecommunications companies

Vodafone Idea’s acceptance of giving away equity is a surprise to many in the industry. While the telecommunications company’s business will continue, it had to pay a heavy price for it. But that does not solve all the problems for Vi. Capital is still required to fund network extensions, 5G spectrum investments and related technologies and more.

“The decision is quite surprising, especially for Vi, as it provides security around business continuity, but at a high price. Now the government will be the largest single shareholder with a 35.8% stake in the telecommunications company. The move will certainly provide some relief from cash flow, but ultimately the operator would need more funds to expand the network, participate in 5G races and compete with rivals, ”said Paliwal of Counterpoint Research.

Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) are already relying on the government for more funding and resuscitation packages. With ownership interests in private telecommunications companies, the government will face more pressure to raise capital in the future.

“Also in the background, we have BSNL and MTNL, which are already dependent on the government’s emergency aid packages, but which constantly do not remain competitive. We can say that we take a stake in Vi, and Tata Teleservices will further put pressure on the government for capital injections in the future. , ”Paliwal added.

Telecom Industry ARPU levels to reach new heights

As far as the telecommunications sector in general is concerned, the emergency package will make a big positive difference. On top of that, telecommunications companies have recently implemented prepaid tariff increases, which will further help with the increase in the industry’s ARPU. Along with the increase in ARPU, revenue in the coming financial year should also grow.

“The industry implemented long-awaited tariff increases, which have the potential to improve industry’s ARPU levels to around Rs 170 by the end of FY2023. ICRA expects industry revenues to grow by 18-20% in FY2023, followed by growth of 10-12% in FY2024, which given the high operating leverage is likely to result in a healthy growth in the operating profit, and the same is expected to grow by around 30% in FY2023, ”said Jain from ICRA.

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