Additionally, the outstanding balance in USOF stood at INR483.73 billion in FY18. Assuming 10% CAGR growth in disbursements from this fund, the current balance would be adequate to cover all disbursements up to FYE22 and still leave a balance of around 2 years of disbursement requirements. This provides sufficient headroom to the regulators to gradually reduce the USOF levy without impinging on the level of public investment in the sector.
The proposed reduction in these levies is likely to provide limited breathing space to the telcos. Recently, the telecom space has undergone rapid consolidation - marked by the exit by various players and a merger between Idea Cellular and Vodafone Mobile Services. Assuming, a 10% decline in blended average revenue per user, 8% subscriber growth rate and 200bp reduction in overall regulatory levies, the weighted average interest coverage ratio (ICR) is likely to improve by around 6% in relation to a base case without any reduction in levies. The agency, thus, believes that the reduction in levies by itself is unlikely to be a measure sufficient to de-stress the sector over the near to medium term.
Investment in Telecom Infrastructure: Ind Ra believes that the draft policy's proposal to classify telcommunication as a critical infrastructure would augur well for players in the active and passive infrastructure space. Such classification is likely to aide the financial flexibility of infrastructure players and catalyse private investments in telecom infrastructure over the medium to long run. While the policy envisages investments to the tune of USD100 billion, mobilsing the same in the near term from private participants would be challenging. The initial investment envisaged in the proposal is likely to be driven by state funded/public investments. This is because the internal free cash flows at the industry level have been subdued over the last 18-24 months and return on capital employed levels are at rock-bottom, given the weakening credit profile of major telcos and the ongoing consolidation across telecom tower companies.
Lingering Structural Issues : The agency opines that structural reforms in the telecom space are critical towards de-risking the telcos over the medium to long run. Efforts such as easing the spectrum receivable repayment period, reducing the interest on spectrum receivables and allowing spectrum trading by telcos are likely to provide some headroom to the operators, although these measures are yet to yield results. Ind-Ra believes that while the draft expresses the regulator's intent to enhance spectrum availability, rationalise spectrum prices and improve utilisation levels, yet it falls short of making specific recommendations in this regard. The success of the proposed policy hinges upon its ability to effectively address these issues over the medium to long term.
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