Dell_20181213

Dell_20181213

The Roller Coaster Ride Is Not Yet Over

The Roller Coaster Ride Is Not Yet Over

No doubt, India must not get left behind when it comes to 5G, as it did at the time of 2G, 3G, and 4G, but the question is, are the various stakeholders, including the consumers ready to embrace the technology?

In the last 71 years since India gained independence, no single development has had as large an impact on the Indian industry as the growth of mobile broadband and digitalization.

With the rise in mobile phone penetration and uptake of data services, the internet economy in India is expected to touch USD 130 billion (Rs 11.32 lakh crore) by 2018, contributing to around 5 percent to the GDP.

The Indian digital economy is projected to reach USD 1 trillion by 2025 and the 5G opportunity globelly at USD 3.5 trillion by 2035, with 22 million new jobs globally. Digital technologies are the drivers that are likely to transform industries, accelerating them on an unprecedented growth trajectory and 5G is the key catalyst.

5G would enable massive commercial deployments of technologies such as IoT, AI, RPA, AR/VR facilitating use cases across industries like automotive, media and entertainment, healthcare, retail, manufacturing, and agriculture amongst others. Further, 5G use cases would have major application for initiatives like smart cities and pave the way for more widespread IoT application by introducing new devices and services across industries.

Billions of new connected devices will come online for which wireless networks will need to be enhanced, extensive fiberization undertaken, and current technologies needed to gear up to handle the demands of the progressively digital savvy consumer. An entire new ecosystem will be required to support this development.

It is expected to usher in huge business for original equipment makers such as Nokia, Ericsson, and Huawei. Telecom operators need cloud infrastructure, distributed network architecture, and an agile operating model to successfully operate a 5G network. 5G will also require a massive level of transformation and Indian telecom operators need to develop that capability in the form of skills, competence, and operating models. While the investment for 5G would grow incrementally as advancements on existing 4G/ LTE technology, with 5G spectrum and network densification needs, it is anticipated that industry might require an additional investment of USD 60–70 billion to seamlessly implement 5G networks.

The industry has been facing deteriorating profitability metrics under intense competition, and burgeoning debt levels. The telcos face a lot of pressure on taxes through license fees, spectrum usage charges, and universal service fees on top of expensive spectrum assets, while the litigation is also high. They have already invested over Rs 10.4 lakh crore in building a world class telecom infrastructure. More than 3 lakh base transceiver stations (BTSs) were added in the last one year taking the total count to 17.64 lakh BTSs. And the return on capital in the industry is lower than 1 percent.

Bharti Airtel has an interest repayment obligation of Rs 2550 crore in 1QFY19 and an Ebit of Rs 1581 crore. Airtel’s interest cover is a mere 0.6. Between Vodafone and Idea, Rs 10,579 crore has to be paid to the government each year from now to 2030, with a small dip in 2031. In FY18, their combined EBITDA earnings were just Rs 13,803 crore; as against Rs 22,017 crore a year ago. Its interest cover is much worse.

As emphasized by Credit Suisse, all telecom debt in the country is owed by companies that have an interest cover of less than one; that is a pretty scary thought for the country’s banks. This ratio of 100 percent today was 55 percent just a year ago and 35 percent two years ago in 1QFY17. All this, of course, presupposes telcos will not buy any more spectrum; should this happen, the equation becomes even more precarious.

Consistent downward revision in prices has resulted in one of the steepest falls in the industry average revenue per user (ARPU) levels with the estimated blended ARPU falling from Rs 169 in 1QFY2017 to Rs 127 in 4QFY2018 – with the industry adjusted gross revenue (AGR) falling from Rs 40,450 crore to Rs 25,640 crore in the same period. The overall high operating leverage of the industry means that the decline in revenues has percolated to pressure on profitability and cash flows. Further, the industry is weighed down by high debt levels and capital expenditure requirements.

Notwithstanding the sizeable CapEx done by most operators in the past, the CapEx to sales ratio for the telcos has increased significantly – at around 30 percent against the average of 15–20 percent seen in the past. Such high CapEx makes it challenging to generate adequate returns with the prevailing ARPU levels.

Rising diesel prices have also contributed to a sequential dip in operating margins of telcos. Since diesel cost is about 7-8 percent of a mobile carrier’s revenue, the continuing price rise of this critical fuel leads to a fall in telco EBITDA margins.

The rupee’s crash contributed to an increase in the cost of imported network gear used in phone networks by nearly Rs 14,000 crore this fiscal, and also heightened financial stress levels of mobile carriers by way of increased foreign debt servicing obligations. “According to the telecom regulator, as much as Rs 1400 billion of telecom equipment was imported in FY18, and if the same quantum of imports is required this fiscal, especially with telcos strengthening 4G infrastructure, the cost of imported telecom gear could rise by Rs 140 billion ( Rs 14,000 crore) in FY19, with the rupee already down 10 percent versus the US dollar,” said Hetal Gandhi, director research at Crisil. Phone companies are reckoned to meet at least 80 percent of the network gear needs through imports from foreign vendors such as Ericsson, Nokia, Huawei, Samsung, and ZTE.

The Indian spectrum is also rather expensive. TRAI has recommended auctioning 20 MHz blocks in the 3300–3600 MHz band for 5G services at a price of Rs 492 crore per MHz of 5G spectrum, each operator would require at least 100 MHz of contiguous blocks of spectrum. In South Korea, the same band was auctioned at roughly Rs 131 crore per MHz in auctions held in June, whereas the infrastructure is significantly better and subscribers pay much higher monthly fees than in India. On an average, 38 percent of all spectrum put on auction in India since 2010 has remained unsold; the figure was as high as 67 percent in 2012, 100 percent in 2015, and 59 percent in 2016. Yet, the government seems to be in no mood to relent. Even without including GST, the government share of telecom revenues rose from 12 percent in 2011 to a likely 25 percent this year.

The government, as of now, is looking at auctions in the second half of 2019. The industry is however recommending the earliest timeline close to 2020, when there will be more clarity on 5G standards.

The declining financial health of the sector has a direct impact on government revenues. After rising from Rs 131,602 crore in 2011 to Rs 198,206 crore in 2016, the sector’s gross revenues are estimated at Rs 142,789 crore this year, and as a result of this, revenues accruing to the government have fallen by around 37 percent in just the last two years, to a likely Rs 36,291 crore this year from Rs 57,673 crore in 2016. While around a third of this took place due to lower annual license fees and spectrum charges as the industry’s revenues fell, two-thirds was due to the fact that, with no auctions in 2017 and 2018, the government did not get any upfront money in those years – as per the terms of auctions, an upfront payment is made in the year of the auction, and the balance is spread out after a moratorium of a few years. This source of revenue is likely to keep declining since, given the state of the industry’s finances, it is unlikely there can be an auction next year either; whether it takes place in 2019 or 2020 will depend on whether things pick up.

And the situation may not get better for some time. Bharti Airtel and Vodafone Idea are expected to report another weak quarter earnings during the July–September 2018 period. Their revenues will be under further pressure on account on of the continued downtrading of ARPU in the prepaid segment and repricing in the postpaid segment to hold on to their subscribers.

The concerns would remain in the near term despite the long-term upsides as the competitive intensity is unlikely to abate. The larger telcos continue to seek higher market share, especially from the smaller/exiting ones, to achieve improved visibility of returns. Thus, the pricing competition would continue in the near term as operators look for a strong subscriber base. Amidst this, the high debt levels remain a major concern, at around Rs 4.6 lakh crore as on March 31, 2017. The telcos would have to consistently invest in networks to keep pace with the strong data growth – the CapEx intensity for the industry is expected to remain upwards of Rs 70,000 crore per annum. The CapEx intensity along with the debt repayment obligations remain sizeable in comparison to the expectedly constrained cash flow generation, resulting in increase in total debt of the industry to Rs 4.7 lakh crore by March 2018 as per ICRA estimates. Thereafter, monetization of tower assets is expected to result in migration in some debt from the telecom services industry to the telecom tower industry, which in addition to fund infusion by the promoters, are expected to result in reduction in debt levels to Rs 4.2 lakh crore as on March 2019. Nevertheless, the debt protection metrics will continue to remain weak – estimated debt/EBITDA of 7.2× as of March 31, 2019.

Is it any wonder that the Indian telecom operators do not seem to be in a hurry to move to 5G? 4G deployments are still at a nascent stage.

The related ancillary industry is not geared up. Apart from the spectrum, a 5G-ready country needs a slew of players to provide a service platform, delivery model, logistics support, and several other niche services.

Nor is the consumer. The main concern among business leaders at telecom operators is the demand for the 5G use cases illustrated by telecom equipment vendors. Telecom analysts are arguing that 5G use cases are not presently suitable for the 900 million plus telecom customers in India. 4G launched for more than 50 percent of the population did not bring any exciting experience to enterprises, while retail customers received some raise in speed due to competition. Top research firms and industry associations do not consider India as the top 10 markets for 5G going by the current investment plans of Indian mobile operators. A GSMA report says 5G will account for just 4.6 percent of total connections in India in 2025. 4G connections will grow to 63 percent of total connections in 2025 from 21 percent in 2017.

The government however has a lot riding on 5G, that is, apart from the revenue angle. Its JAM (Jan Dhan Aadhaar Mobile) program, formalization of large parts of the economy, transforming agriculture, getting healthcare, new job opportunities – all these are only possible to deliver if we embrace 5G.

If the government wants to ensure that the huge investments required to update the telecom backbone and airwaves to 5G are forthcoming by the three remaining telcos, it will need to restore the financial health of the sector. 5G spectrum auction prices will need to be relooked. Levies, spectrum usage charge, and license fee will have to be revisited, harmonized contiguous spectrum facilitated, the 5G high-level forum empowered, E and V bands allocated are some of the obvious ones.

The private operators must have a business case to justify the investment, and the government will need to be on the same side of the fence.

“Consolidation transactions over the last two-three quarters released a sizeable subscriber base which provided opportunities to larger telcos to enhance their subscriber market share, thus keeping the competitive intensity high. From March 2017 to March 2018, the larger telcos together added 202 million active subscribers and a large portion of this – 192 million came at the expense of discontinuing telcos. Now the subscriber base of the discontinuing telcos has largely diminished. But the impending merger of Vodafone and Idea, and the ensuing integration of the two may see some erosion of subscribers, giving an opportunity to other operators. Thus, we expect that a stable industry structure, with three operators holding more than 90 percent of the market share, to coincide with the stabilization of the Vodafone–Idea merger. Till such time, the pricing levels in the industry are unlikely to witness material improvement.”

Harsh Jagnani
Sector Head & Vice President – Corporate Ratings,
ICRA Ltd

BHARTI AIRTEL

Bharti Airtel is one of the world’s leading providers of telecommunication services with significant presence in 16 countries, representing India, Sri Lanka, and 14 countries in Africa.

The company’s diversified service range includes mobile, voice, and data solutions, using 2G, 3G, and 4G technologies.

It provides telecom services under wireless and fixed line technology, national and international long distance connectivity, and digital TV; and complete integrated telecom solutions to our enterprise customers. All these services are rendered under a unified brand Airtel either directly or through subsidiary companies.

The company also deploys and manages passive infrastructure pertaining to telecom operations through its subsidiary, Bharti Infratel Limited, which also owns 42 percent of Indus Towers Limited. Together, Bharti Infratel and Indus Towers are the largest passive infrastructure service providers in India.

Financial review

The company’s consolidated revenues stood at Rs 83,687.9 crore for the year ended March 31, 2018, as compared to Rs 95,468.3 crore in the previous year, decrease of 12.3 percent (decrease of 9.8 per after normalizing for impact of IUC rate cut in India, divested operating units of Africa/Bangladesh and acquisition of Tigo, Rwanda). The revenues for India and South Asia (Rs 64,421.7 crore for the year ended March 31, 2018) represented a de-growth of 13.5 percent compared to that of the previous year (de-growth of 11.6 percent after normalizing for impact of IUC rate cut and impact of Bangladesh divestment). The revenues across 14 countries of Africa, in constant currency terms, grew by 4.9 percent (growth of 4.6 percent adjusting for the impact of divestment of tower assets and acquisition of Tigo, Rwanda).

The company incurred operating expenditure (excluding access charges, cost of goods sold, license fees, and CSR costs) of Rs 35,888.8 crore representing a decrease of 9.2 percent over the previous year. Consolidated EBITDA at Rs 30,447.9 crore decreased by 14.5 percent (decrease of 13.3 percent after normalizing for impact of IUC rate cut in India, divested operating units of Africa/Bangladesh and acquisition of Tigo, Rwanda) over the previous year. The company’s EBITDA margin decreased during the year to 36.4 percent as compared to 37.3 percent in the previous year.

Depreciation and amortization costs for the year were lower by 2.7 percent to Rs 19,243 crore. Consequently, EBIT for the year at Rs 11,084.5 crore decreased by 29.3 percent (decrease of 31.1 percent after normalizing for impact of IUC in India and impact of divestments) resulting in margin of 13.2 percent vis-à-vis 16.4 percent in the previous year. The cash profits from operations (before derivative and exchange fluctuations) for year ended March 31, 2018 were Rs 22,716.9 crore vis-à-vis Rs 28,366.6 crore in the previous year.

Net finance costs at Rs 8071.2 crore were higher by Rs 373.7 crore, compared to the previous year, mainly due to lower investment income by Rs 348.8 crore. The increase on account of spectrum related debt in India was partially off-set by lower forex losses in the current year compared to the previous year. Consequently, the consolidated profit before taxes and exceptional items was at Rs 4060.1 crore compared to Rs 8893 crore for the previous year.

The consolidated income tax expense (before the impact on exceptional items) for the full year ending March 31, 2018 was Rs 1491.8 crore, compared to Rs 4423 crore for the previous year. The decline is primarily led by drop in profits in India. After adjusting for certain losses where no DTA was created, the underlying effective tax rate in India for the year ended March 31, 2018 was at 26.5 percent versus 29.4 percent in the previous year. The tax charge in Africa for the full year (excluding divested units) was at USD 159 million versus USD 148 million in the previous year on account of change in profit mix of the countries.

Net income before exceptional items for the full year came in at Rs 1396 crore as compared to Rs 3813.4 crore in the previous year. Exceptional items during the year accounted for net impact of Rs 297 crore. These included impact of gains/losses on divestment of subsidiaries, translation impact in Nigeria due to transition to market-based exchange rate, litigation related assessments, operating costs on network re-farming and upgradation programs and assessment of tax provisions. After accounting for exceptional items, the resultant consolidated net income for the year ended March 31, 2018 came in at Rs 1099 crore as compared to Rs 3799.8 crore in the previous year.

The capital expenditure for the full year was Rs 26,817.6 crore (USD 4.2 billion) as compared to Rs 19,874.5 crore in the previous year (an increase of 34.9 percent). Consolidated operating free cash flow for the year was at Rs 3630.3 crore as compared to Rs 15,746.1 crore in the previous year. Higher investments and continued pricing pressure in India have resulted in decline of Return on Capital Employed (ROCE) to 4.6 percent from 6.5 percent in the previous year.

“Telecom markets across emerging economies are in transition. While life cycles of 2G and 3G are getting truncated, 4G is taking rapid strides. Market structures are getting reshaped with fewer players to facilitate these investments. With our strong balance sheet and robust spectrum portfolio across markets, we are well positioned to make the best of this transition to come out stronger.”

Sunil Bharti Mittal
Chairman,
Bharti Airtel

“As we look ahead, we remain excited about the massive opportunity in India. With three large private operators serving 1.3 billion people, the industry is poised for sustained long term growth. While there will be pricing pressure in the short term, the long term remains promising. We believe the company is well poised to exploit this future. With massive investments, an iconic brand, and a team that is obsessed about serving customers we are confident that Airtel will remain a force to reckon with.”

Gopal Vittal
Managing Director & CEO (India & South Asia),
Bharti Airtel

Liquidity and funding

As on March 31, 2018, the company had cash and cash equivalents of Rs 4788.6 crore and short-term investments of Rs 6897.8 crore. During the year ended March 31, 2018, the company generated operating free cash flow of Rs 3630.3 crore. The company’s consolidated net debt as on March 31, 2018 increased by USD 517 million to USD 14,611 million as compared to USD 14,094 million last year, mainly on account of increased capital expenditure. The Net Debt–EBITDA ratio (USD terms LTM) as on March 31, 2018 stood at 3.13 times as compared to 2.63 times in the previous year, mainly on account of increased borrowings and reduced EBITDA. The net debt–equity ratio stood at 1.37 times as on March 31, 2018, compared to 1.35 times in the previous year.

During the year, the company undertook several initiatives to meet its liquidity and funding requirements. The company completed the secondary sale of its subsidiary Bharti Infratel Limited (Bharti Infratel) to global fund managers and global tower company investors for a consideration of approx. Rs 2570 crore and Rs 3325 crore in 2Q18 and 3Q18 respectively, thereby reducing its equity stake to 53.51 percent in Bharti Infratel. These proceeds were primarily used by the company to reduce its debt. The company also made its maiden unsecured listed.

NCD issuance of Rs 3000 crore in 4Q18. The company continues to maintain its credit ratings and has access to both domestic and international debt capital markets.

SEGMENT-WISE PERFORMANCE
B2C services

Airtel entered into several M&A transactions to harness operational synergies and scale benefits from consolidation. During the year, the acquisition of Telenor India has also been approved by the Department of Telecommunications (DoT). The company also completed the acquisition of Tikona Digital Networks. The company also entered into agreements with Tata Teleservices Ltd. (TTSL) and Tata Teleservices (Maharashtra) Ltd. (TTML) to merge their consumer mobile business (CMB). The deal is currently under regulatory approvals. The above acquisitions further strengthened the company’s spectrum portfolio.

The company crossed the milestone of 300 million customers in India; the latest 100 million customers have joined the Airtel family in less than 2 years. As on March 31, 2018, the company had 304.2 million GSM customers. During the year, total minutes on network increased by 45.3 percent to 1946.3 billion. The churn decreased to 3.5 percent for the current year, compared to 3.7 percent during the previous year. The company had 86.1 million data customers at the end of March 31, 2018, of which 76.6 million were mobile broadband customers. The total MBs on the network for the full year has increased by 432.2 percent to 3901.8 billion MBs. The company has also expanded its reach within the digital space. Wynk music remains the number 1 music app in the country and Airtel TV is now ranked number 3 amongst comparable video OTT apps. It offers more than 350 live channels, 8000+ movies, and is available in 14 languages.

During the year, revenues decreased by 18.2 percent to Rs 46,263.9 crore as compared to Rs 56,551.1 crore in the previous year. The segment witnessed decline in the EBITDA margin to 32.6 percent during the year, compared to 40.3 percent in the last year. EBIT margin for the year declined to 4.5 percent, compared to 18.7 percent in the last year.

The company expanded its project leap initiative announced last year and continued to invest in building data capabilities and provide a world class network to customers who are on a journey of digital transformation. The CapEx investment, its highest ever, was almost entirely targeted to this end. These investments resulted in the company being named as the fastest mobile network in India by the global leader in internet speed test – Ookla for three consecutive times in a row.

The company had 165,748 network towers, compared to 162,046 network towers in the last year. Mobile broadband (MBB) base stations stood at 298,014 at the end of the year, compared to 190,860 at the end of last year.

Airtel announced a strategic partnership with SK Telecom, Korea’s largest telecommunications company to leverage the latter’s expertise to build the most advanced telecom network in India.

Mergers and acquisitions. Airtel entered into several M&A transactions to harness operational synergies and scale benefits from consolidations.

  • Airtel’s proposed merger with the Indian unit of Norway’s Telenor was approved by DoT. The DoT transferred all licenses belonging to the Indian unit of Norway’s Telenor, along with its liabilities to Airtel.
  • Airtel’s proposed merger with the consumer business unit of TTML) and TTSL is under regulatory approvals. Securities and Exchange Board of India (SEBI) has given approval for the TTML merger.
  • Airtel has completed the proposed acquisition of shares of Tikona Digital Networks and Tikona has become a wholly owned subsidiary of Airtel.
  • Airtel (through the subsidiary company) acquired a strategic stake in Juggernaut Books (Juggernaut), a popular digital platform to discover and read high-quality, affordable books and to submit amateur writing. This synergizes with Airtel’s endeavor to build an open content ecosystem and bring world class digital content to customers.

Successful divestment/funding. Airtel (through the subsidiary company) offloaded Rs 5895 crore stake in Bharti Infratel primarily to pare debt and issued Rs 3000 crore worth NCDs to refine existing debt.

Bharti Airtel Limited via its wholly owned subsidiary, Nettle Infrastructure Investments Limited, divested 150 million shares of its subsidiary Bharti Infratel Limited through secondary share sale in the stock market for a consideration of over Rs 5895 crore.

Airtel issued non-convertible debentures worth up to Rs 3000 crore on a private placement basis. The proceeds of the issue will be used for routine treasury activities such as refinancing of existing debt and spectrum liabilities.

Network expansion and transformation. Airtel took several initiatives to remain lean and agile and provide a world class network to customers who are on a journey of digital transformation.

Airtel signed an agreement with DoT and the Universal Service Obligation Fund (USOF) in December 2017 for provision of mobile services in identified uncovered villages and national highways in the North Eastern States of Assam, Manipur, Mizoram, Nagaland, Sikkim, Tripura, and Arunachal Pradesh. Under the agreement, Airtel will set up over 2000 mobile towers in more than 2100 villages over the next 18 months.

Airtel announced the launch of India’s first Telecom Infra Project (TIP) Community Lab. Airtel is among the early members of TIP – a global initiative founded by Facebook, Deutsche Telekom, Intel, Nokia, and SK Telecom to create a new approach for building and deploying telecom network infrastructure.

Airtel announced the deployment of massive multiple-input multiple-output (MIMO) in partnership with Huawei Telecommunication India. Part of Airtel’s ongoing network transformation program, Project Leap, this technology will expand existing network capacity and enhance user experience. The first round of deployment has started in Bangalore and Kolkata.

Airtel launched its VoLTE services in Mumbai, Madhya Pradesh, Andhra Pradesh, Gujarat, Karnataka, Chennai, Maharashtra, Goa, and Chhattisgarh. Customers can now enjoy HD quality voice calls and call any mobile, landline network using Airtel VoLTE, which works over 4G.

Airtel conducted India’s first 5G network trial in partnership with Huawei.

Homes services. The company provides fixed-line telephone and broadband (DSL) services for homes in 89 cities across India. The company expanded V-Fiber technology for its homes customers after it became the first operator to deploy Vectorization in India; this technology enables the customers to experience internet speeds of up to 100 Mbps. The homes business had 2.2 million customers as on March 31, 2018, representing a growth of 2.0 percent as compared to 2.1 million at the end of previous year. DSL customers now represent 94 percent of the total homes customers as compared to 92.3 percent in the previous year.

Revenues from homes services stood at Rs 2526.5 crore for the year ended March 31, 2018, as compared to Rs 2751.8 crore in the previous year, decrease of 8.2 percent. EBITDA margin has been slightly decreased during the year to 46.7 percent as compared to 47.2 percent in the previous year. During the year, data traffic increased by 55.6 percent to 1340.8 billion MBs.

Digital TV services. The company served a customer base of 14.2 million on its direct-to-home platform (Airtel digital TV), as on March 31, 2018, adding 1.4 million customers during the year.

The company currently offers both standard and high definition (HD) digital TV services with 3D capabilities and Dolby surround sound. The company currently offer a total of 649 channels including 75 HD channels, 5 international channels, and 4 interactive services. Revenues for the year stood at Rs 3757 crore for the year ended March 31, 2018, as compared to Rs 3430.6 crore in the previous year, increase of 9.5 percent. Affordability of HD set-top boxes, demand for HD channels, and upselling efforts led to ARPU flat at Rs 231.

Operating free cash flow on a full year basis at Rs 394.9 crore compared to cash flow of Rs 361.1 crore during the previous year.

Key highlights

Divestment.  Airtel announced that an affiliate of Warbug Pincus will acquire an equity stake of up to 20 percent in Bharti Telemedia Limited – its DTH arm. After this transaction, Airtel will own 80 percent equity stake in Bharti Telemedia Limited.

B2B services

Airtel business. An ICT services provider, its diverse portfolio of services includes voice, data, video, network integration, data center, managed services, enterprise mobility applications, and digital media. Airtel Business consistently delivers integrated solutions, customer service, and reach to global markets, to enterprises, governments, carriers, and small and medium businesses.

Revenues in this segment comprise: (a) Enterprise and corporates fixed line, data and voice businesses; and (b) Global business, which includes wholesale voice and data. Revenue as per point (a) Above, together with Enterprise Mobile revenues (included in India Mobile) is at Rs 9589.4 crore in this year, this is now 15 percent of the total India revenues.

Global business, the international arm of Airtel business, offers an integrated suite of global and local connectivity solutions, spanning voice and data to the carriers, telcos, OTTs, large multinationals, and content owners globally.

Airtel’s international infrastructure includes the ownership of i2i submarine cable system, connecting Chennai to Singapore and consortium ownership of submarine cable systems like South East Asia – Middle east – Western Europe – 4 (SWM4), Asia America Gateway (AAG), India – Middle East – Western Europe (IMEWE), Unity, Europe India Gateway (EIG), and East Africa Submarine System (EASSy). Along with these seven owned subsea cables, Airtel Business has a capacity on 22 other cables across various geographies.

Its global network runs across 250,000 Rkm with over 1200 customers, covering 50 countries and five continents and 65 global PoPs (point of presence). This is further interconnected to its domestic network in India and direct terrestrial cables to SAARC countries, Myanmar, and China helping accelerate India’s emergence as a preferred transit hub.

Leveraging the direct presence of Airtel Mobile operations in 16 countries across Asia and Africa, global business also offers mobile solutions (ITFS, signaling hubs, messaging), along with managed services and SatCom solutions. Global business is also providing advanced consumers solutions like IoT to global customers.

Key highlights

Digital transformation and expansion. Airtel rolled out a first-of-its-kind dedicated digital platform for B2B customers (including SMEs and startups) to serve their growing connectivity, communication and collaboration requirements. With Airtel’s new digital platform on www.airtel.in/business/businessinternet small businesses can buy new communication and collaboration products to enable faster time to market and enhance ease of doing business.

Airtel has acquired the Indian leg of Gulf Bridge International (GBI) India – Middle East – Europe submarine cable with an aim to consolidate its global network leadership and serve the exploding data demand in emerging markets like India, Gulf, and Africa.

Strategic alliances

Airtel entered into a strategic alliance with Symantec Corp. to serve the growing cyber security requirements of businesses in India, providing protection and prevention of online threats. As part of the agreement, Airtel will be the exclusive Cybers security Services partner for Symantec in India, and will distribute Symantec’s enterprise security software.

Passive tower infrastructure

A subsidiary of the company, Bharti Infratel Ltd. (Infratel), is India’s leading provider of tower and related infrastructure and it deploys, owns, and manages telecom towers and communication structures, for various mobile operators. It holds 42 percent equity interest in Indus towers, a joint venture with Vodafone India and Aditya Birla Telecom who hold42 percent and 16 percent respectively. The company’s  consolidated portfolio of 91,451 telecom towers, which includes 39,523 of its own towers and the balance from its 42 percent equity interest in Indus Towers, makes it one of the largest tower infrastructure providers in the country with presence in all 22 telecom circles. The company has been the industry pioneer in adopting green energy initiatives for its operations. Infratel is listed on the Indian stock exchanges, NSE and BSE.

Investment plans

The company had announced that it plans to invest Rs 25,000 crore pan-India in mobile network sites, capacities, fiber roll-out, and digitalization among others.

Airtel is expanding its broadband network footprint to stay abreast with competition and fulfilling customers’ expectation. As a part of expansion program, the company will deploy additional LTE sites with fiber/ backhaul readiness and will expand its coverage by strengthening its LTE FDD footprint in order to provide seamless connectivity. The surge in volume will necessitate enhancement of the LTE TDD layer to support additional traffic in select places of high throughput.

With the explosion in data, Airtel will significantly step-up backhaul readiness on its site along with increased fiberization and rapidly expand its transmission backbone and aggregation capacity to cater to the additional data load.

With the exponential increase in voice minutes, the company has recently launched VoLTE services offering HD quality calls along with faster call set up time which once scaled up will give a significantly better experience to the customers.

Technology has been rapidly evolving in the telecom sector. In the next few years wide scale commercial deployment of 5G is expected to start. In such a scenario, the company is making its investments future proof and starting to be ready for 5G network deployment.

1QFY19

During the quarter, Bharti Airtel acquired Telenor’s operations in India. Financial and operational parameters of the combined entity are part of India results. The consolidated revenues for 1Q’19 at Rs 20,080 crore de-grew 2.3 percent YoY (reported drop of 8.6 percent) on an underlying basis (viz. adjusted for India domestic and international termination rate reduction and divested operating units). Consolidated mobile data traffic at 2236 billion MBs in the quarter has registered a robust YoY growth of 328 percent.

India revenues for 1Q’19 at Rs 14,930 crore have declined by 7.0 percent YoY (declined 13.5 percent on reported) on an underlying basis. Mobile segment continues to be impacted by aggressive industry pricing and has witnessed YoY de-growth of 11.0 percent. Other businesses in India have witnessed healthy YoY growth for example, 10.6 percent in digital TV and 11.8 percent in Airtel Business on an underlying basis. Mobile data traffic has quadrupled to 2151 billion MBs in the quarter as compared to 472 billion MBs in the corresponding quarter last year. Mobile broadband customers increased by 75.2 percent to 85.7 million from 48.9 million in the corresponding quarter last year.

In constant currency March 1, 18 terms, Africa revenues grew by 13.9 percent YoY led by strong growth in data and Airtel money transaction value. Mobile data traffic has grown by 75 percent to 78 billion MBs in the quarter as compared to 44 billion MBs in the same quarter last year. Data customers increased by 45.2 percent to 26.4 million from 18.2 million in the corresponding quarter last year. Active Airtel Money customer base increased to 11.8 million, boosting the total transaction value on Airtel Money platform by 43 percent to USD 6.1 billion. Our continuous cost control initiatives have resulted in improvement of EBITDA margin by 7.8 percent YoY and stands at 36.4 percent.

Consolidated EBITDA at Rs 6837 crore declined 12.6 percent YoY. Consolidated EBITDA margin decreased by 1.6 percent to 34.0 percent in the quarter as compared to 35.6 percent in the corresponding quarter last year. Consolidated EBIT dropped by 43.8 percent YoY to Rs 1680 crore. The consolidated net income after exceptional items for the quarter stands at Rs 97 crore (4Q’18: Rs 83 crore) compared to Rs 367 crore in the corresponding quarter last year.

OUTLOOK

With convergence of mobility services, entertainment, banking, education, the role of a smartphone has expanded enormously. Airtel is the only player with an integrated product portfolio, and wide geographical presence. Bharti Airtel’s Network leadership and excellent customer experience delivery will continue to stimulate company’s growth against its competitors.

VODAFONE IDEA LIMITED

Vodafone India and Idea Cellular, two of India’s leading operators partnered together on August 31, 2018 to form Vodafone Idea Limited, building a company of international repute, scale, and standards. With over 408 million subscribers, #1 RMS in nine circles, broadband network of 340,000 sites, with distribution reach with 1.7 million retail outlets, it seemed a new champion for Digital India. With 1850 MHz of total spectrum holding, over 200,000 unique GSM sites, and 235,000 km of fiber, the merged company offers voice and broadband connectivity across the country, covering 92 percent of the population and reaching nearly 500,000 towns and villages. A formidable entity indeed!

“As India’s leading telecom operator with two popular and loved brands, the company has the scale and resources to ensure sustainable customer choice and introduce new technologies. We are committed to offer both our retail and enterprise customers an excellent experience while fulfilling their evolving digital and connectivity needs via new products, services and solutions. We will offer them more network coverage, more value and more excitement.”

Balesh Sharma
CEO,
Vodafone Idea Limited

“Today, we have created India’s leading telecom operator. It is truly a historic moment. And this is much more than just about creating a large business. It is about our vision of empowering and enabling a New India and meeting the aspirations of the youth of our country. The Digital India, as our Honorable Prime Minister describes it, is a monumental nation-building opportunity. As Vodafone Idea, we are partnering in this initiative by building a formidable company of international repute, scale and standards.”

Kumar Mangalam Birla
Chairman Aditya Birla Group and Vodafone Idea Limited,
Vodafone India on the occasion of the merger

“Our business managed costs extremely well, which helped mitigate the reduction in our EBITDA margin despite rolling out 50,000 3G/4G sites during the year. The cost initiatives included active network site sharing, renegotiation of tower maintenance contracts and closure of sites with low usage,”

Sunil Sood
Managing Director,
Vodafone India

The merger is expected to generate Rs 140 billion annual synergy, including OpEx synergies of Rs 84 billion, equivalent to a net present value of approximately Rs 700 billion. The equity infusion of Rs 67.5 billion at Idea and Rs 86 billion at Vodafone coupled with monetization of standalone towers of both companies for an enterprise value of Rs 78.5 billion, provides the company a strong cash balance of over Rs 193 billion post payout of Rs 39 billion to the DoT. Additionally, the company has an option to monetize an 11.15 percent stake in Indus, which would equate to a cash consideration of Rs 51 billion. As at 30 June 2018, net debt was Rs 1092 billion.

With the merger behind us, financial analysts are expecting the telco to have a difficult time. Kotak Institutional Equities noted in their report that the Vodafone Idea combine is expected to post a wider net loss of Rs 3047 crore during 2Q19, up from over Rs 1784 crore in the quarter ended June 30, 2018, even though the company is estimated to post an increase of 28 percent QoQ in revenues to about Rs 7547 crore. While the EBITDA is expected to increase by 5.5 percent sequentially to over Rs 695 crore, the EBITDA margins are likely to fall by 200 basis points to 9.2 percent. However, Idea (ex-Vodafone) on a like-on-like basis, is estimated to report a 34 percent QoQ EBITDA decline. And this is after basking in some initial merger cost synergy gains. Vodafone Idea’s ARPU is expected to be in the range of Rs 96-97 versus Rs 100 in the preceding quarter.

IIFL Institutional Equities and ICICI Securities estimate a net loss in the vicinity of Rs 2600 crore, although Credit Suisse pegs it lower at Rs 1050.5 crore. Revenue is estimated to be in the Rs 7813–8106 crore range for the September quarter. It might also have to shell out a hefty penalty for exiting tower contracts, which if fully provided, could be to the tune of Rs 3000–3500 crore, but is likely to be treated as an extraordinary item.

Various integration challenges have also emerged ranging from trimming excess mobile sites to rationalizing human resources. The company has a tough task cut out as it aims to bring operational synergies in an extremely competitive market. Removing overlapping mobile sites, aligning networks with equipment from two different vendors, including removing duplication of towers, limiting head count, recovering Rs 7249 crore paid to DoT for merging their mobile business are a few obvious ones.

IDEA CELLULAR LIMITED
2017-18

Structural changes in the consumption of mobile telephony services. As wireless data adoption in FY18 saw a strong surge with the launch of unlimited data bundled plans, Idea witnessed record wireless broadband data subscriber addition of 15.1 million this year, improving the overall broadband penetration from 13.0 percent in FY17 to 20.5 percent in FY18. The company’s wireless broadband subscriber (EoP) base stood at 39.8 million out of total 46.8 million mobile data users. Similarly, Idea witnessed strong return of subscriber addition with 12.2 million Net customer adds on VLR in H2FY18. Idea improved its subscriber market share (VLR) from 19.4 percent in February 2017 to 20.9 percent in February 2018. The company’s overall subscriber base (VLR) stood at 207.7 million as on March 31, 2018.

Significant investments underway to build a robust broadband infrastructure. During FY18, Idea continued aggressive expansion of its wireless broadband infrastructure, adding 44,856 broadband sites (3G+4G) during the year. The broadband sites increased from 110,054 as on March 31, 2017 to 154,910 sites as of March 31, 2018, taking the overall network footprint on EoP to 286,356 sites (GSM+3G+4G). The wireless broadband population under coverage now expands beyond 650 million Indians spread across 164,000 towns and villages in 22 services areas. Idea started deploying the 2300 MHz TDD spectrum in its leadership circles of Maharashtra and Kerala and 2500 MHz TDD spectrum in Andhra Pradesh to further augment its wireless data capacity. The company expanded its fiber network from 115,500 km (March 31, 2016) to 156,800 km as on March 31, 2018. Idea also launched voice over LTE (VoLTE) services for employees in select circles recently and is scheduled to introduce VoLTE services in a phased manner for its customers from May 2018.

The overall CapEx spend for the year was Rs 70 billion, the majority of which was utilized for 4G expansion. The company’s gross investment in fixed assets has risen to nearly Rs 1255 billion. The monetization of this front loaded large investment in spectrum and equipment is inevitable as the Digital India mission gathers momentum and mobile internet penetration improves.

Rates continued to fall in 4QFY18. The explosion in voice volumes driven by higher adoption of unlimited bundled plans has led to Idea’s highest ever sequential quarterly voice minutes growth @16.9 percent in 4QFY18 (on the back of 10.8 percent growth in 3QFY18). The sharp increase in volumes led to voice rate (including the impact of reduction in international IUC rate) fall by 20 percent to 13.4 paisa per minute (vs. 16.8 paisa in 3QFY18). Similarly, the mobile data volume (2G+3G+4G) continued to witness robust sequential quarterly growth of 43.2 percent (on the back of sequential quarterly growth of 30.2 percent in 3QFY18) as Idea’s pan Indian mobile data network carried 818 billion MB of data volume this quarter. However, the mobile data rate decreased to 1.4 paisa per MB, down 31.4 percent versus 2.0 paisa per MB in 3QFY18.

The overall subscriber momentum remained strong with 6 million net adds on EoP in 4QFY18. But the blended overall customer ARPU downgraded from Rs 114 in 3QFY18 to Rs 105 in 4QFY18 due to enhanced competitive intensity. This has led to a sequential quarterly revenue decline of 5.7 percent to Rs 61,373 million in 4QFY18 (vs. Rs 65,097 million in 3QFY18) including revenue impact of Rs 520 million due to reduction in international IUC from 53 paisa to 30 paisa per minute w.e.f. February 1, 2018. The EBITDA for the quarter stands at Rs 14,473 million.

Overall financial performance remained under pressure in FY18. During the year, the dual negative factors of (a) steep reduction in domestic and international MTC settlement rate and (b) unrelenting rate pressure on voice and mobile data services as high ARPU consumers migrate to lower priced unlimited voice bundled data plans resulted in 20.5 percent decline in Idea’s gross revenue in FY18 to Rs 282,789 million (vs. FY17 revenue of Rs 355,757 million). While the company remained cautiously optimistic on India’s growth story and continued to expand its scale of operations, this tumultuous phase impacted Idea’s EBITDA during the current financial year by 41.0 percent to 60,476 million (vs. Rs 102,436 million in FY17). The EBITDA margin for the year declined to 21.4 percent from 28.8 percent in FY17. Meanwhile, the company remains committed to optimize its operating costs in the new sector paradigm.

The Depreciation and Amortization charge and Interest and Financing Cost (Net) for FY18 stood at Rs 84,091 million and Rs 44,600 million respectively resulting in the unprecedented standalone PAT loss of Rs 41,628 million in FY18 (vs. PAT loss of Rs 4075 million in FY17). The consolidated total comprehensive income (including proportionate share from Indus and ABIPBL) stands at a loss of Rs 41,399 million in FY18 (vs. loss of Rs 4040 million in FY17). The Net Debt as on 31st March 2018 stands at Rs 523.3 billion, including a large component of debt from DoT under the Deferred Payment Obligation for spectrum acquired in auctions.

Update on standalone tower asset monetization. On November 13, 2017, Idea and Vodafone, announced the sale of their respective standalone tower businesses in India to ATC Telecom Infrastructure Private Limited (American Tower) for a combined enterprise value of Rs 78.5 billion to strengthen the balance sheet of the merged entity. Vodafone India had already received Rs 38.5 billion for its standalone towers and Idea expected to receive its due of Rs 40 billion in 1HCY18 after necessary FDI approval was received for acquisition of ICISL (Idea’s 100 percent tower subsidiary) by American Tower.

Idea successfully completed equity raising of Rs 67.5 billion, monetization of Indus Tower stake. On February 12, 2018, the company issued and allotted 326.6 million equity shares at a price of Rs 99.50 per share on a preferential basis to the promoter group entities for a total consideration of Rs 32.5 billion. The company also announced successful closure of its Qualified Institutional Placement on February 23, 2018 and allotted approximately 424.2 million equity shares to qualified institutional buyers, at an issue price of Rs 82.50 per equity share, aggregating to approximately Rs 35 billion. The equity raise of Rs 67.5 billion reduced Idea’s net-debt and as a result Vodafone net-debt contribution to the merged entity will also be reduced by a commensurate amount.

On April 25, 2018, the merger of Bharti Infratel and Indus towers was announced which will create the largest tower infrastructure company in the world (excluding China) with 163,000 towers pan India.

1QFY19

Idea Cellular posted a net profit of Rs 263.6 crore for the April–June period, after taking a Rs 3364.5 crore exceptional gain from the sale of Idea Cellular Infrastructure Services to American Tower Corp. Without the gain, it would have suffered a Rs 2757.6 crore loss. Gross revenue for the fiscal first quarter fell nearly 28 percent to Rs 5889.2 crore.

Idea’s average revenue per user fell sequentially to Rs 100 from Rs 105 and its subscriber base fell from 194.5 million in the previous quarter to 187.9 million. EBITDA fell nearly 65 percent on-year to Rs 659.5 crore and the EBITDA margin declined to 11.2 percent from 23.6 percent in the January–March period. It had a debt of Rs 50,580.5 crore at the end of the June quarter, when it saw an equity infusion of Rs 6750 crore. Quarterly voice minutes at 349.5 billion grew 39.4 percent on-year, while monthly broadband data usage increased to 8 GB from 3 GB.

VODAFONE INDIA LIMITED
2017-18

Vodafone India posted an operating profit of Rs 9805 crore for 2017-18. The UK-based group had reported an operating loss of around Rs 30,690 crore for 2016-17 on account of Vodafone Group’s cutting down the valuation of its Indian business by taking gross impairment charge of €4.5 billion.

It reported an 18.7 percent decline in organic service revenue to around Rs 35,045 crore in 2017-18 compared to Rs 42,927 crore service revenue registered in the preceding fiscal. Data traffic on the network of Vodafone India increased four-fold but the company could not reap financial benefits because of sharp decline in data prices.

The net debt of Vodafone India stood at Rs 58,119 crore or €7.7 billion at the end of the period, down from Rs 64,014 crore (€8.7 billion) at the end of the prior financial year. The decline was due to the positive translation impact of closing foreign exchange rates on the debt balance of €1.2 billion and proceeds of Rs 3850 crore from the sale of Vodafone India’s standalone towers to American Tower Corporation.

The results for FY18 comprised a non-cash charge of 3170 million euros (2245 million euros net of tax) to reduce the carrying value of Vodafone India to fair value less costs to sell.

1QFY19

Vodafone India gained 1 million subscribers in India during 1QFY19 with data connections standing at 77 million. Its service revenue fell 31 percent to €955 million (~Rs 7646 crore) from €1.38 billion a year earlier. The decline from the preceding quarter was limited to 1.4 percent. In all of FY 2017-18, the company had added 76 million data users.

Data usage per subscriber at the end of the quarter stood at 4.6 GB, up from 3.5 GB in the previous quarter.

Postpaid ARPUs declined by 20 percent and prepaid by 28 percent in the quarter. This pricing pressure was mitigated as customers consolidated spending onto a single-SIM following the increased penetration of unlimited offers, which were by July 2018 adopted by 29 percent of the prepaid customer base. Its total subscriber base declined by 3 million sequentially, reflecting the SIM consolidation trend across the market, totaling 219.7 million in July 2018.

RELIANCE JIO INFOCOMM LIMITED

Reliance Jio disrupted the telecom sector when it launched its services in September 2016, triggering a wave of consolidation in one of the world’s most crowded telecom markets. Perhaps some credit can be attributed to Jio for the turn of events.

“Jio, now the world’s largest and fastest growing mobile data network, stunned the world and made us proud by turning profitable in the very first year of operations.

The year saw our consumer businesses attain a threshold, wherefrom they will start contributing meaningfully to consolidated profits. From a mere 2 percent in FY 2016-17, Jio and Retail accounted for 13.1 percent of RIL’s consolidated segment EBITDA in FY 2017-18. This was achieved notwithstanding a sharp 33.6 percent spurt in consolidated EBITDA to Rs 74,184 crore. Our aim is to have the consumer businesses contribute on par with the energy and materials business over the next decade, when we celebrate our Golden Jubilee.”

Mukesh D. Ambani
Chairman and Managing Director,
Reliance Industries Limited

For post Jio’s entry, major players saw a huge reduction in revenue, Bharti Airtel (Rs 1124.23 crore), Idea (Rs 529.28 crore), Vodaphone (Rs 524.54 crore), and BSNL (Rs 694.42) in 4Q16 soon after the introduction of Reliance JIO free services; Idea and Vodafone announced a merger, Tata group’s wireless phone business and Telenor were acquired by Bharti Airtel; and Aircel went on record to say that they filed an application under Section 10 of the Insolvency and Bankruptcy Code 2016 for undertaking Corporate Insolvency Resolution Process for the respective companies: Aircel Cellular, Dishnet Wireless, and Aircel Limited, as a result of the disruptive entry of Jio and the failed attempt of combining wireless operations of Aircel and Reliance Communications Limited on account of legal and regulatory uncertainties (and also the unsuccessful aim to restructure its debt amounting to Rs 155 billion). RCom itself later sold its wireless assets to Jio.

Jio’s entire approach was one of market disruption. Its three-pronged focus on broadband networks, affordable smartphones, and the availability of rich content and applications enabled Jio to create an integrated business strategy from the very beginning.

The various strategies adopted by Reliance Jio to capture the Indian market included free voice, apps, SMS, and data initially, which pulled 100 million subscribers within 170 days; bundled entertainment of apps; huge investment in physical advertisements like flyers and posters in most of the parts of the country, sponsorship of events like Indian Super League; low-cost mobile phones; new and very affordable pricing strategies, traditional pricing strategies were having 12 billing cycles (recharges) but it got reduced to about three to four billing cycles (recharges); free voice calls, free roaming and 100 SMS per day; plans like 84 GB data for 84 days at Rs 399 as against the prevalent 1 GB data for Rs 190. High-speed data was now a commodity.

The telco’s operational strategy was equally aggressive. Extensive construction of towers, forging agreements with towercos, laying extensive fiber backhaul, and last mile fiber connectivity; construction of international networks like Bay of Bengal Gateway; and investment in licenses and spectrum were the initial steps. Technological advancements like voice over long term evolution and the vision for upgrades like 5G so that it is prepared for future development innovation like progress to 5G with negligible extra capital use in systems were part of the process technology. The company’s distribution strategy included more margins and schemes to distributors and retailers, fast and digital SIM activations through eKYC, and 4G smartphones and other merchant devices for retailers to start business.

The stage had been set very early to make available high-speed data to every Indian at the most affordable rates, with zero call charge forever.

2017-18 marked the commencement of commercial operations of Jio.  In its very first year of commercial operations, the digital services business recorded revenues of Rs 23,916 crore, with year-end subscribers base at 186.6 million. Reliance Jio reported strong financial performance for the year despite competitive pressures with net profit at Rs 723 crore . Segment EBIT was at Rs 3174 crore for the year, with EBIT margin of 13.3 percent. Depreciation, including depletion and amortization was higher by 43.4 percent to Rs 16,706 crore as compared to Rs 11,646 crore in the previous year, primarily on account commencement of wireless service business in Reliance Jio. Each Jio subscriber on an average consumes 9.7 GB data, 716 minutes of voice calls, and 13.8 hours of video per month.

Jio’s end-to-end all-IP network is the most differentiated network with functionalities such as SDN and NFV, and has been consistently rated as the fastest network in India by TRAI’s MySpeed application over the last 15 months. Jio’s average download speed of 17.9 Mbps is more than twice the network speed available on any other network. Jio has also been consistently rated to have the widest LTE coverage in the country. During FY 2017-18, it continued expanding the 4G network coverage, and further deepening in existing areas to achieve a 99 percent population coverage.

Jio is constantly striving to enrich the digital experience of its customers through innovative applications developed in-house, or in collaboration with the unique ecosystem of small and large partners.

Making life better for everyone. Jio offers its subscribers unique content such as PyeongChang 2018 Olympic Winter Games and Jio Cricket Play Along. The MyJio app is the most popular self-care app with over 150 million downloads and substantial additional features. Jio has forged partnerships with the likes of Balaji Telefilms, Eros International, and Saavn to bring unique content with an intuitive user interface to every Indian.

The company continues to make progress on delivering enterprise solutions, FTTH and IoT, with beta trials initiated in a few locations. These services are being offered using the existing integrated network and platforms. During the year, Jio was awarded the first rank in India and 17th globally in the Fast Company’s World’s 50 Most Innovative Companies list for 2018. Jio also won the Best Mobile Operator Service for Consumers award at the recent Mobile World Congress 2018. It was awarded The Disruptors title in the CNBC TV18’s India Business Leader Awards 2018. JioTV won the Best Mobile Video Content award at the Global Mobile Awards 2018.

OUTLOOK

Jio will continue to evaluate and deploy various technologies, both wireless and wire line, to offer comprehensive broadband solutions to consumers, small businesses, enterprises, government, and other entities, while building and innovating on a full suite of digital services and applications.

While Jio continues to march on its promise to shape the future of India through transformative, quality, and affordable access of end-to-end digital services for every Indian and making the Digital India vision a reality, Jio reiterates its vision and ultimate goal of a full digital life style solution provider to every Indian and making a meaningful social-economic impact.

1QFY19

This quarter, Reliance Jio announced the launch of the world’s first artificial intelligence (AI) based brand engagement platform – JioInteract. The first of many services to be launched on this platform is the Live Video Call that features India’s favorite celebrities.

Reliance and Radisys Corporation, a global leader of open telecom solutions, have entered into a definitive agreement under which Reliance will acquire Radisys for USD 1.72 per share in cash. This acquisition will accelerate Jio’s global innovation and technology leadership in the areas of 5G, IoT, and open source architecture adoption.

Digital services

Robust EBITDA of Rs 3147 crore; net profit of Rs 612 crore. India’s largest wireless data subscriber base (215.3 million as of 30 June 2018). 642 crore GB data consumption during 1Q FY19. ~10.6 GB per user per month; 76 percent of total industry 4G data traffic. Highest voice consumption per sub at 744 minutes per month.

Segment performance

Strong performance led by growth in subscriber additions as well as higher data usage.  215.3 million subscribers; net adds of 28.7 642 crore GB data consumption; ~10.6 GB/user/month; 76 percent of total industry 4G data traffic. Highest voice consumption per sub at ~744 minutes per month. Robust EBITDA margins; strong operating leverage to play out. JioGigaFiber – largest greenfield fixed line broadband to be launched covering 1100 cities.Segment performance

OUTLOOK

Jio’s mission is to connect everyone and everything, everywhere – always at the highest quality and the most affordable price.

Reliance Industries Limited is expected to go for an initial public offering (IPO) for its telecom unit Reliance Jio Infocomm Limited in the next 2-3 years. The plan for listing RJio IPO will be formulated after the company’s consumer businesses, which include Reliance Jio, overtake its energy business in terms of revenue.

With the company turning profitable and a recent report by CLSA claiming that Reliance Jio had one of the lowest customer acquisition and network costs, the company appears to be focusing on retaining and adding more customers. RJIo’s aggressive plans to add customers in the recent past have led to the constitution of many research and development centers. The company is also expected to invest hugely in AI.

The petroleum-to-retail-stores conglomerate has invested more than Rs 2.5 lakh crore in the telecom industry in the past few years attempting to capture a major share of the rising digital consumption – from data to multimedia and streaming of movies and entertainment content on various platforms. It is also aggressively expanding its retail venture.

“While India has pole-vaulted into global leadership in the mobile broadband space… we still lag behind significantly in fixed-line broadband. Optical fiber based fixed-line broadband is the future. Jio is determined to move India to among the top 5 in fixed-line broadband, too” said Mukesh Ambani, at the recent shareholders meet.

TATA TELESERVICES LIMITED

Tata Teleservices (TTSL and TTML) are in the process of merging their consumer mobile business (CMB) with Bharti Airtel (and Bharti Hexacom). Shareholders of Bharti Airtel have approved the merger on August 2018. The meeting was convened by Airtel following direction of the principal bench of the National Company Law Tribunal, at New Delhi. The deal is on a no-debt, no-cash basis, implying Airtel is not taking over any of the about Rs 40,000 crore debt of Tata Teleservices and is neither paying any cash, except for Bharti Airtel assuming a small portion of the unpaid spectrum liability of Tatas toward DoT, which is to be paid on a deferred basis. The deal, subject to regulatory approvals, will see over 40 million customers of Tata Teleservices (TTSL) and Tata Teleservices Maharashtra (TTML) joining Bharti Airtel.

“We believe this agreement is the best and most optimal solution for the Tata group and its stakeholders. Finding the right home for our longstanding customers and our employees has been the priority for us. We have evaluated multiple options and are pleased to have this agreement with Bharti.”

N Chandrasekaran
Chairman,
Tata Sons

The proposed merger will include transfer of all the customers and assets of Tata CMB to Bharti Airtel, further augmenting Bharti Airtel’s overall customer base and network. It will also enable Bharti Airtel to further bolster its strong spectrum footprint with the addition of 178.5 MHz spectrum (of which 71.3 MHz is liberalized) in the 850, 1800, and 2100 MHz bands. Bharti Airtel will ensure quality services to Tata CMB’s customers, while offering them the added benefits of its innovative product portfolio, access to superior voice and data services, mobile banking, VAS, and domestic/international roaming facilities. Tata CMB’s operations and services will continue as normal until the completion of the transaction.

Tata and Bharti Airtel will work together to further explore other mutual areas of cooperation, which will be value accretive for both the groups. The transaction will also provide Bharti Airtel with an indefeasible right to use (IRU) for part of the existing fiber network of Tata.

The employees of Tata will be demerged on the lines of the two businesses, that is, CMB and EFL (enterprise and fixed line and broadband), and post an optimal manpower planning will be moved accordingly.

Tata is also in initial stages of exploring combinations of its enterprise business with Tata Communications and its retail fixed line and broadband business with Tata Sky. Any such transaction will be subject to respective boards and other requisite approvals.

Tata will retain its stake in Viom, and will take care of the liabilities associated with it. The boards of Tata Sons, TTSL, and TTML have approved this transaction. Goldman Sachs (India) Securities Private Limited is Tata’s financial advisor.

In the meantime, TTML has received approval from its shareholders and promoters to raise up to Rs 20,000 crore, through debt instruments. This is mainly for repayment of debt.

2017-18

The company reported total revenue of Rs 5325 crore during the year, a 43.8 percent decline over the previous year. It reported a 178.3 percent fall in EBITDA at Rs 901 (negative) crore as against Rs 1150 crore in the previous year. The EBITDA margin also reduced to 17 percent (negative) from 12 percent in the previous year. The company’s loss before exceptional items was Rs 4871 crore as compared to last year’s loss of Rs 3649 crore. It recorded exceptional items of Rs 12,759 crore which include, inter alia, provision for impairment of intangible assets and provision for diminution in value of investment in its associate TTML. The reported net loss was Rs 17,630 crore.

Key developments. The last fiscal had seen several factors in both the environment and strategic direction of the businesses impact its operations. The recent consolidation in the industry and the continuing price wars have had a substantial negative impact on the revenues and profitability of the company. During the year, the company was focusing on containing losses even at the cost of lower revenues and growth in the mobility business. Operations were being scaled down where those were not financially viable. There were employee redundancies several times during the year. Voluntary separation schemes were made available to certain employees several times during the year. The market speculation on the future of the company had negative impact on the sentiments including those of employees and customers which negatively impacted the business. Shut down of operations by other operators impacted some of the wholesale revenue streams. The proposed Bharti transaction, signed in October 2017, shifted mobility focus back to revenue sustenance and value creation. The shutdown of the network as wireless operations moved on to an ICR arrangement with Bharti reduced the reach and spread of the network impacting the enterprise business as well. Attrition was high at 34 percent, as against 27 percent last year.

1QFY19

TTML’s total comprehensive loss narrowed to Rs 454.46 crore for the 3 months ended June 30, 2018. The company, whose accumulated losses have exceeded its paid up capital and reserves, said in a regulatory filing that it has secured a support letter from the promoters, indicating their willingness to organize for any liquidity shortfall in meeting financial obligations and repayment of debt.

Exceptional items during the quarter comprise restructuring cost of Rs 90.30 crore (Rs 135.04 crore in the preceding March quarter and Rs 264.30 crore for the last fiscal).

Revenue from operations came to 39.5 percent lower at Rs 334.45 crore for the June quarter compared to Rs 553.09 crore in the year-ago period.

TTML has received its board’s approval to raise additional fund of Rs 20,000 crore through debt instruments. This is mainly for repayment of debt.

RELIANCE COMMUNICATIONS

Reliance Communications (RCom) has exited the flagship wireless businesses. It has hived-off its fiber and related infrastructure assets worth of Rs 3000 crore to Reliance Jio, with 178,000 km fiber transferred to Reliance Jio Infocomm. A week before this it had announced completion of the sale of its media convergence nodes (MCNs) and related infrastructure assets, worth Rs 2000 crore to Jio. It is also looking to selling its spectrum, and the enterprise-focused offerings including subsea cables, international fixed line, and data center businesses.

“The first priority for RCom, which is credited for democratizing telecom services through cheaper offers in early 2000s, is to resolve its over Rs 40,000 crore debt.

We have decided that we will not proceed in this sector. We will completely exit the telecom business and concentrate on the real estate business. We are resolving the debt through a strategic debt restructuring (SDR) process. I am confident of getting a resolution in the next few months, and other monetization measures, including sale of telecom infrastructure and fiber to Reliance Jio, are at an advanced stage of closure. RCom is awaiting final approvals for spectrum sharing and trading from the Department of Telecom.

It would be most appropriate for me to thank and acknowledge the support (and) guidance extended to RCom and me personally by my brother Mukesh bhai Ambani.

There has been a creative destruction of the telecom sector that has resulted in creation of oligopoly, which is going toward a duopoly and may be even a monopoly in the future. Banks are saddled with over Rs 7.7 lakh crore in debt and the financial troubles of operators have resulted in over 20 lakh job losses.

As we move out of the mobile sector, we will monetize our enterprise business at an appropriate stage. Reliance Realty will be the engine of growth for the future of this company. The residual company will serve 35,000 businesses through the enterprise, data centers, undersea cables, and international voice calling verticals and will get half of its revenues from abroad.”

Anil Ambani
Chairman,
Reliance Communications

The proceeds from the sale will go to its creditors. RCom had to be dragged into the SDR after it failed to meet its debt repayment commitment of Rs 46,000 crore to 39 lenders, including a group of over dozen banks and Chinese lenders. Ericsson India Pvt Ltd, which had signed a seven-year deal in 2014 to operate and manage RCom’s nationwide telecom network, had dues pending of Rs 1500 crore. The vendor moved the NCLT to recover its dues by auctioning RCom. It settled for Rs 500 crore, to be paid by September 30, which was appealed in the Supreme Court by RCom for an extension of 60 days. RCom, in a regulatory filing to the BSE, said it will receive Rs 975 crore from sale of spectrum, and that it will pay Ericsson Rs 550 crore and RITL (Reliance Infratel) minority investors Rs 230 crore from the spectrum trading proceeds.

The company expects to raise about Rs 18,000 crore by selling its wireless assets to Jio and realty assets to Canada’s Brookfield. Jio would also take over spectrum payment liability worth Rs 7000 crore. RCom’s wireless assets that will eventually go to Jio include 122.4 units of 4G airwaves across the 850, 900, 1800, and 2100 MHz bands; over 43,000 towers; and 178,000 route km of fiber with a pan-India footprint. Recently, the company decided that it would sell an additional 65 MHz spectrum in the 800 MHz band to Jio for Rs 3500–3700 crore which would help it reduce its debt further.

2017-18

RCom, together with its subsidiary Global Cloud Xchange Limited (GCX), has been a leading global communications services provider with businesses including a vast global subsea network; a global on-net cloud ecosystem; extensive India and global enterprise business; India data center business (IDC); and India national long distance (NLD) business.

RCom and GCX currently served nearly 40,000 Indian and global corporations, including over 200 global, regional, and domestic carriers. RComM conducted a substantial portion of its business through subsidiary companies, including, GCX, Reliance Communications Infrastructure Limited (RCIL), and RITL.

India enterprise services. In India, RCom provides wireline telecom services to the business and government segments. These include a comprehensive portfolio spanning network connectivity, cloud connectivity, enterprise voice, cloud telephony, access number services, and wholesale voice. The company currently serves nearly 40,000 businesses and agencies of all sizes – from multinational conglomerates to SMEs – belonging to almost every vertical: BFSI, manufacturing, logistics, healthcare, IT and ITeS, OTT, and new media, to name just a few.

Data centers. When RCom was set up IDC in 2002, it virtually heralded the third-party data center business in India, setting the stage for world-class facilities within the country. Over the years, the company has built infrastructure and expertise and is today a leading provider of data center services across key markets globally. RCom has nine world-class data centers spread across key business markets in India (Mumbai, Bengaluru, Chennai, and Hyderabad).

Reliance Infratel Limited (telecom infrastructure business). RITL, a subsidiary of RCom, is in the business of building, owning, and operating telecommunication towers, optic fiber cable assets, and related assets at designated sites, and to provide these passive telecommunication infrastructure assets on a shared basis to wireless service providers and other communication service providers under long-term contracts.

Financial performance. On a consolidated basis, the company earned total revenues of Rs 4684 crore. The net loss after tax recorded by the company was Rs 24 crore. Total operating expenditure stood at Rs 3785 crore. The company earned EBITDA of Rs 899 crore. The EBITDA margin for the year was 19.20 percent. The depreciation and amortization charges were Rs 721 crore. The loss before tax was Rs 8 crore. Tax was to the tune of Rs 16 crore and the loss after tax was Rs 24 crore.

As on March 31, 2018, the company had total assets of Rs 74,578 crore. Stakeholders’ equity was Rs 2783 crore, while net debt (excluding cash and cash equivalents) was Rs 46,470 crore, giving a net debt to equity ratio of 16.70 times.The revenues for the financial year ended March 31, 2018 for RCom’s India operations were Rs 2534 crore.

The EBITDA during the same period was Rs 286 crore (USD 44 million), while the EBIT (earnings before interest and tax) was Rs 220 crore.

1QFY19

The company narrowed its losses in the fiscal first quarter ended June 30, 2018, significantly from the previous quarter, which included the impact of a one-time charge the Anil Ambani-owned telco had to factor in due to the closure of its wireless assets.

For the April–June quarter, RCom posted a loss of Rs 343 crore compared with Rs 19,776 crore in the previous quarter. The total income stood at Rs 1008 crore, a drop of about 27 percent when compared on a like-to-like basis. However, the revenue was up from the Rs 976 crore, the telco posted in previous quarter. RCom’s net loss from continuing operations was Rs 110 crore.

MOVING FORWARD

RCom will be left with one-tenth of its original employees, serve 10,000 customers, and have a debt of Rs 2800 crore. It will continue to operate in the B2B segment, which includes the submarine cables and enterprise businesses.

BHARAT SANCHAR NIGAM LIMITED

The state-run telecom operator, BSNL claims that it has outperformed private sector rivals such as Bharti Airtel, Vodafone India, and Idea Cellular in net subscriber additions, when over 11.3 million subscribers joined BSNL’s network from rivals in 2017-18.

“Net percentage subscriber additions of BSNL are the highest at 11.5 percent in 2017-18. Industry statistics reveal that Bharti Airtel grew at 9.5 percent, Vodafone 3.8 percent, Idea 3.2 percent during the same period.”

Anupam Shrivastava
CMD, BSNL

BSNL plans to invest Rs 4300 crore toward infrastructure expansion and network modernization activities in FY19. New investment will be for putting up 4G hotspots, expansion of 3G services, replacement of outdated network, enhancement of broadband capacity, and making the core network robust with further extension in far-flung areas. It is also looking to add 12,000 mobile towers for 3G expansion.

The government is looking at a plan to allocate 4G spectrum on a commercial basis to the carrier. The telco has proposed to pay 50 percent upfront through the equity route for acquiring a 5 MHz block spectrum in the 2100 MHz band, and the rest in 16 annual installments through the revenue it generates after the 4G service rollout. It is planning to launch 4G on the 2100 MHz band in all licensed service areas (LSAs) except Rajasthan where we have airwaves in the 800 MHz range. The telco has already launched 4G technology-based data services in Kerala and Karnataka on a pilot basis, and can concurrently run 3G and 4G services on the 2100 MHz frequency range in order to optimally utilize the band.

The telco has also formed a fully-owned subsidiary BSNL Tower Corp. Ltd. (BTCL), as a separate entity for mobile infrastructure deployment, and BTCL would start operations after the conclusion of the ongoing regulatory process.

The company also aims a Rs 6.5 billion revenue in FY19 through partnerships with virtual network operators (VNOs). The company has tied-up with VNOs Plintron and Aerovoyce, becoming the first telco in the country to launch such services. The Telecom Commission, had recently removed double taxation for VNOs. The issue of double taxation has been the major reason for muted growth of VNO services in India. There are around 67 firms, which had taken licenses for VNOs but most of them are yet to launch services due to cascading taxes. However, now the VNOs only have to pay adjusted gross revenue (AGR) on the value added, a move which may kickstart the VNO framework.

FINANCIAL HIGHLIGHTS

Telecom Regulatory Authority of India (TRAI) data puts BSNL’s wireless subscriber base at 111.68 million in March 2018, up from 107.92 million in December 2017 and 101 million in March 2017.

BSNL posted Rs 4785 crore as provisional and unaudited net loss in 2017-18, compared with Rs 4786 crore net loss in 2016-17. Revenue for the year fell to Rs 27,818 crore from Rs 31,533 crore a year earlier.

The company’s income stood at Rs 324.11 billion (FY16), Rs 315.33 billion (FY17), and Rs 278.18 billion in FY18 (provisional and unaudited). The numbers are gloomy for BSNL, which spends around half of its earnings on salaries to employees. Compare that to Airtel, whose employee benefit expenses only amounted to a little under 5 percent of revenue in 1QFY19.

Since BSNL has incurred losses consecutively for the last 3 years, it has been declared as Incipient Sick as per the guidelines of the Department of Public Enterprises (DPE). Accordingly, action has been initiated by the Department of Telecommunications (DoT) for preparation of a revival/restructuring plan of BSNL. Details are:

Implementation of providing mobile connectivity in 2199 identified locations in left wing extremism (LWE) affected areas at an estimated cost of Rs 3567.58 crore

Refund of surrendered BWA (broadband wireless access) spectrum in six service areas held by BSNL. Under this head, Rs 6724.51 crore was refunded to BSNL through budgetary resources

  • Implementation of the Comprehensive Telecom Development Plan for Andaman and Nicobar Islands and Lakshadweep Islands through augmentation of satellite connectivity/bandwidth at an estimated cost of Rs 120.49 crore
  • Refund of Rs 169.16 crore to BSNL on account of surrender of CDMA (code division multiple access) spectrum
  • Optical fiber cable based Network for Defense Services (NFS Project) has been given to BSNL on nomination basis at the cost of Rs 24,664 crore
  • For execution of the BharatNet project, the government has provided Rs 5744 crore in phase-I and has earmarked Rs 6500 crore in phase-II to BSNL
  • Comprehensive Telecom Development Plan for the North-Eastern Region for provision of mobile services in uncovered villages in Arunachal Pradesh and two districts of Assam at an estimated project cost of Rs 1975.38 crore and implementation of Transmission-Media Plan for the North Eastern Region at an estimated cost of Rs 295.97 crore
  • Submarine Optical Fiber Cable Project at the cost of Rs 1900 crore has been assigned to BSNL on nomination basis for providing connectivity to the Andaman and Nicobar Islands
  • Work of setting up of 25,000 wi-fi Hotspots at Rural Telephone Exchanges at the cost of Rs 940 crore has been given to BSNL
  • Work of setting up of a satellite gateway at the cost of Rs 68 crore has been given to BSNL on a nomination basis
  • Notional loan of Rs 1411 crore to BSNL which was due to be paid to the government was waived-off.

MAHANAGAR TELEPHONE NIGAM LIMITED

The other state-owned telco, MTNL, operates only in Mumbai and Delhi in India, and in Mauritius, so its scale of cash flow is significantly lower than that of BSNL.

“An asset monetization program is being thought about, wherein excess assets can be monetized. However, the assets are owned by multiple entities – MTNL, DoT, and the government. The DoT is fine selling off the assets it holds, however the proposal will have to be taken to the cabinet.”

Manoj Sinha
Minister of State for Communications

The DoT is planning a Rs 30,600 crore financial aid to MTNL. The amount would be used to cut the firm’s debt and losses. A Rs 2300 crore VRS (voluntary retirement scheme) for its employees is also in the offing.

MTNL is planning investing Rs 190 crore to upgrade its services. This will enable it to install new base transceiver stations, among other initiatives. 4G spectrum may also be allotted to the state-run operator so that it may become a viable and a major player in the telecom sector.

PERFORMANCE REVIEW
2017-18

Mobile network. MTNL has undertaken the task of improving the wireless network in Delhi and Mumbai so as to improve the downlink speed of 21.1 Mbps and uplink speed of 5.76 Mbps which is presently of 3.6 Mbps and 384 kbps respectively with following major projects:

  • Expansion of GSM/3G RF network by adding 1080 3G sites and 800 hybrid microwaves to meet the backhaul capacity and data handling capacity to 10 Gbps and upgradation/replacement of the existing 3G network (720 node-Bs) and 754 existing 8 Mbps microwave hops to 400 Mbps capacity in MTNL Delhi.

The project implementation kicked off in 2017 with the following current status:

  • While 730 new node-Bs have been put on air, 470 sites have been upgraded in the year 2017-18;
  • 451 new microwave hops were commissioned while 518 hybrid microwaves have been upgraded/redeployed in Delhi in 2017-18; and
  • 160 node-Bs have been shifted to optical fiber backhaul.

3G network up-gradation of the existing 3G network (720 node-Bs) and 497 existing 8 Mbps microwave hops to 400 Mbps in Mumbai

The project implementation kicked off in 2017 with the following current status: 695 node Bs have already been upgraded for 21 Mbps speed

Redeployment of DSLAMs of the existing broadband network near the subscriber premises in Delhi and Mumbai thereby reducing copper length and enhancing the quality of broadband service. A total of 220 DSLAMs have been redeployed in Delhi and 174 in Mumbai. In the year 2017-18, 47 DSLAMs in Delhi and 23 in Mumbai have been redeployed thereby reducing copper length and enhancing the quality of broadband service. This has improved customer experience and reduced the number of complaints.

This year, MTNL finalized and made operational its new policy to engage partners on a revenue share basis to extend its FTTx services. 20 partners in Mumbai and 14 partners in Delhi have already started to provide BB over FTTH at speeds up to 100 Mbps.

1QFY19

Government-owned telecom operator MTNL continued to post losses. For the quarter ended June 30, 2018 it reported losses of Rs 943.38 crore. Losses widened by 4.7 percent from Rs 600.3 crore in the preceding quarter, while on a year-on-year (YoY) basis it increased by 34.16 percent from Rs 703.17 crore in the corresponding quarter last year. MTNL’s losses for 2016-17 were the same as that in 2017-18, Rs 2971 crore.

Total income recovered stood at Rs 607.7 crore, down 8 percent QoQ from Rs 660 crore in 4QFY18, and down 25.22 percent from a total income of Rs 812.7 crore in 1QFY18. Operating income also stood at Rs 492.3 crore for the quarter, the same as the preceding quarter, and significantly down 25.1 percent from Rs 657.2 crore in the same quarter last year.

Segment revenues

Basic (fixed line and broadband) revenue stood at Rs 430.8 crore, a decline of 2.3 percent QoQ from Rs 440.6 crore in 4QFY18. In 1QFY18, this segment had posted revenues of Rs 555.7 crore, representing a decrease of 22.5 percent as compared to this 1QFY19. The segment posted losses of Rs 372.8 crore, decreasing somewhat from losses of Rs 428.4 crore in the preceding quarter, and a loss of Rs 296.6 crore in the corresponding quarter last year.

Cellular segment revenues stood at Rs 62.6 crore, up 19 percent from Rs 52.6 crore in the previous quarter, and ~60 percent of the Rs 101.9 crore revenues posted in 1QFY18. The losses posted by the segment marginally decreased this quarter by 6 percent at Rs 177.1 crore, as compared to losses of Rs 168 crore in the preceding quarter. However, losses widened on a YoY basis, as the segment reported a loss of Rs 127 crore in 4QFY17.

Government’s indecision on MTNL

It is worth noting that the government had, last year, considered merging BSNL and MTNL in the Lok Sabha to save the company from a possible shutdown. But later in a Lok Sabha reply in August 2017, Minister of Communications Manoj Sinha said that “there is no proposal for merger of BSNL and MTNL.”

Earlier, in February 2017, the Ministry of Communications had informed the Lok Sabha that MTNL is exploring options to monetize its assets which may contribute to additional revenue.

OUTLOOK

Although MTNL is meeting most of TRAI’s QoS parameters, the network needs immediate upgradation/expansion. The CapEx is continuously declining over the period. Investment of Rs 2000–2500 crore is required over next 2-3 years for upgradation and expansion. The company has planned to upgrade its 3G network in Delhi and Mumbai and managed to incurred CapEx of more than Rs 500 crore (including 3G network upgradation) during the year ended up to 31-03-2018 with the help of borrowings only. However being in a debt trap of Rs 17,720 crore as on March 31, 2018 (excludes Rs 4533.97 crore of the bonds, the liability for interest and principle of which are with the Government of India), it is a great threat for the company to meet the CapEx as well as OpEx requirements. Hence MTNL should take necessary steps to meet the quality of service parameters to raise the quality of service and thereby revenue/customer retention.

MTNL’s 2G/3G network in Delhi and Mumbai is quite old. With the passage of time, new technologies are introduced in the market by manufacturers/operators to meet the customer aspirations and demand. Accordingly, the maintenance supports for legacy/old equipments poses a big challenge for any operator. MTNL is also facing difficulty in getting maintenance support from various manufacturers of 2G/3G network equipment. The Validity of the Cellular License is also approaching its due date, that is April 05, 2019, if the extension request of MTNL is not considered by the government.

Following immediate technological upgradation/expansion for improvement of service and keeping the QoS intact, expansion/up-gradation of MW backhaul, 3G network up-gradation in Delhi and Mumbai, expansion of GSM/3G RF network, migration of legacy TDM network to IMS, extending reach of FTTH, and taking fiber to the HUB/near the subscriber are required. An investment of Rs 2000–2500 crore would be needed over next 2-3 years for this upgradation and expansion. However being in a debt trap, it is a great threat for the company to meet the CapEx requirement.

Since MTNL has incurred losses continuously since financial year 2009-10, it has been declared as incipient sick as per the guidelines of Department of Public Enterprises (DPE). Accordingly, action has been initiated by the Department of Telecommunications (DoT) for preparation of revival/restructuring plan of MTNL. Details are:

  • Refund of surrendered BWA (broadband wireless access) spectrum in two service areas held by MTNL. Under this head, Rs 4533.97 crore has been refunded to MTNL through bonds;
  • The pension liability of MTNL staff who were absorbed from Department of Telecommunications (DoT), has been taken over by the government;
  • Financial support of Rs 492.26 crore has been given to MTNL on account of liability arising from levy of minimum alternate tax (MAT); and
  • Refund of Rs 458.04 crore to MTNL on account of surrender of CDMA (code division multiple access) spectrum.

There is provision of high-speed internet on fiber to the home (FTTH) and Wi-Fi at the residences of MPs. The project cost of Rs 43.2 crore was funded by DoT.

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