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Lowdown: Govt revenue from telecom sector continues to decline

Government’s revenue generation from the telecom sector continues to decrease following the launch of Reliance Jio, and due to rising competition and consolidation. Top three telecom operators in the country Airtel, Idea and Vodafone have also reported a substantial drop in their revenues in Q4FY17. This subsequently leads to a lower amount of license fee and SUC collection, since levies/fees are calculated on the basis of telco earnings.  Here is a lowdown of what TRAI said in its latest report which indicates license fee collection and telco performance.

License Fee, SUC collection from telcos drop considerably

  • License fee collection from the overall sector declined 9% Quarter-on Quarter (QoQ) to Rs 3,361 crore for the quarter ended March 2017 (Q4 FY17), from Rs 3,698 crore in quarter ended December 2016 (Q3 FY17). On a year-on-year (YoY) basis, license fee collection dropped by 13.19%, TRAI said. Currently, the DoT collects 8% of a telco’s adjusted gross revenue as ‘license fee’, this percentage could vary between 5-8% on the basis of each circle a telco operates in.
  • Overall Gross Revenue reported by the telecom sector stood at Rs 63,315 crore and Adjusted Gross Revenue (AGR) stood at Rs 40,831 crore in Q4 FY17. This is a decline of 4.84% QoQ and 11.05% QoQ respectively. AGR is similar to Gross Revenue but includes properties installation charges, late fees, sale proceeds of handsets or towers, value added services, supplementary services, among others. Note that telcos had earlier challenged the definition of AGR in the Supreme Court and Telecom Disputes Settlement and Appellate Tribunal (TDSAT).
  • Access Service (voice and data) license holders contributed to a majority of the government’s telecom earnings. Access Service holders also reported a 12.77% fall in License Fee collection, while Spectrum Usage Charges (SUC) collected from these telcos also dropped by 16.33% in Q4FY17. SUC charges are fixed at flat 3% of a telco’s gross revenue. Note that earlier Reliance Jio had earlier opposed fixing a flat SUC charge of 3%, stating that this might lead to smaller players shelling out more usage charges when compared to established players.

ARPU continues to take a hit

Increased competition in the market forces telcos to provide lower tariffs. Before Jio made its launch last year, the concept of bundling voice and data together was limited to just postpaid users, and to some extent to prepaid users as well. But note that such packs were always costly. Jio changed this with extravagant promos and free data offers. Competitors were also forced to drop prices and give out freebies as well.

This price war has an impact on the business side as well:

  • Monthly Average Revenue Per User (ARPU) of all GSM (including) LTE operators declined by 20.44% from Rs 104 in Q3FY17 to just Rs 83 in Q4FY17, according to TRAI. Monthly ARPU (of GSM) operators also dropped by 33.78% on a Y-o-Y basis.
  • Telcos make more money from postpaid users. Prepaid ARPU for GSM service per month declined from Rs 86 in Q3FY17 to Rs 67 in Q4FY17, and Postpaid ARPU per month also declined from Rs 456 in Q3Fy17 to Rs 412 in Q4FY17.
  • Telcos also seem to be making more money from voice segment as Minutes of Usage (MOU) per subscriber reported by the overall telecom sector increased by 11.94% from 360 minutes in Q3FY17 to 405 minutes in Q4FY17.

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