Tariff wars may lead to telecom sector loan defaults: DoT

The ongoing telecom tariff war may prove detrimental to the financial health of the telecom sector as the dwindling revenues would make it difficult for service providers to repay loans.

Telecom operators cumulatively owe a total of Rs4,50,000 crore to various banks. This includes loans taken for acquiring spectrum at government auctions.

The Department of Telecom (DoT) has now warned that the sector may default on its loan repayments if the ongoing financial stress continues.

J S Deepak, secretary, DoT, is reported to have written to the Telecom Regulatory Authority of India (Trai) seeking a review of the situation and take urgent action.

''Being a highly capital intensive sector, there is a continuous need to invest in network upgradation and rollout to provide adequate quality of services both in rural and urban areas,'' reports quoted from the official's note to Trai.

''The inability to service debt or meet its repayment obligations can further affect the investment and growth of the industry. Further, the large exposure of banks and financial institutions to the telecom sector, slowdown in growth and potential defaults by telecom companies... can have a serious impact on the banking sector as well,'' he added.

The DoT said the ongoing tariff war in the industry, triggered by new entrant Reliance Jio's promotional offers, was the main reason for the precarious financial health of the sector.

The department said this could also impact the repaying capabilities of the mobile operators who bought spectrum worth Rs3,45,000 crore in the last few years.

Telcos have so far returned Rs1,90,000 crore of the loans taken by them while the remaining Rs3,08,000 crore, including interest thereto, is yet to be paid.

DoT itself is concerned over declining revenues as a result of the falling income generated by the operators. The current fiscal will probably be the first time when government revenues from telecom licence fee and spectrum usage charge will fall.