INDIAN the telecom industry, although one of the most

INDIAN INSTITUTE OF MANAGEMENT, KOZHIKODE Report onTelecom Industry of IndiaPrepared by:Group 11 | Section CAjitesh Kumar PGP/21/130Gaurav Suri PGP/21/146Kumari Ity PGP/21/151Vaibhav Agrawal PGP/21/183A. Overview and Current Market ScenarioThe Indian telecommunication sector is one of the fastest growing industries in the world. In the last two decades, the Indian telecom sector has caught the imagination of India by revolutionizing the way we communicate, share information and has helped people to stay connected. The industry has become one of the major driving forces and has contributed immensely to the overall economic development of the nation.With a subscriber base of nearly 1185.55 million as of February 2017, India accounted for the 2nd largest telecom network in the world. India stood 3rd highest in terms of total internet users in 2016 with 391.50 million internet subscribers as on December 2016. As per the February 2017 report, urban tele density is at 166.77% while rural tele density is at 55.92%. India is the world’s 2nd largest smartphone market and is expected to have almost 1 billion unique mobile subscribers by 2020.Despite the presence of many players in Indian telecom space, the industry is mainly dominated by top four players – Airtel, Vodafone, Idea and Reliance Jio accounting for 74.98% of wireless subscribers in the country. Bharti Airtel with 278.6 million subscribers is the largest mobile operator in India. Reliance Jio is the fourth largest telecom operator in India with 117.3 subscribers. Vodafone India and Idea Cellular have 211 million and 196.2 million subscribers respectively.The major growth drivers of the telecom industry in India are:• Availability of affordable smartphones and lower rates• Mobile banking• Govt. initiatives like Digital India programme• Strong telecommunication infrastructure• Raising disposable income• High demand was broadband service• Expansion to rural market• Internet of Things (IoT) in Smart cities                B. Analysis of the Industry using various Financial Metrics               As we can see above, the different ratios aptly depict the debt condition of the major players in the telecom industry. This shows that the telecom industry, although one of the most lucrative and continuously growing industries in India, is constantly burdened with huge amounts of debt due to reasons such as unavailability of credit financing options or due to recent entry of Reliance Jio in the market which resulted in a big price war.Before the launch of Reliance Jio, Airtel and Vodafone were the major market players of the telecom sector having a constant debt ratio at around 0.3 to 0.4. As they were expanding their services across the untouched segments thereby increasing their assets, the amount of debt raised that time was also at par with the industry standards as well as their ability to pay the interest (interest coverage ratio) was around 14.5 (average for all the companies) for the year 2015. Reliance Jio has drawn about 9.6% of the total market share of the other major telecom players between September’16 to April’17. Other players are losing their share with the competitive players by shifting their current strategy from voice to data. The other weaker players need to exit but their high debt poses structural problem for exit which can be analysed by their financial leverage ratio which has shown a sudden spike after the launch of Reliance Jio. Even the interest coverage ratio for many of the telecom players is less than one.Having said that, we have come up with some recommendations based on our analysis to somehow improve the not so good financial condition of the telecom companies.C. RecommendationsOver the period 2013-18, the telecom sector has witnessed rising debts due to numerous issues such as extensive network capital expenditure, fierce competition for acquiring 2G, 3G and 4G spectrum and changes in government policies. Between 2016-17, price wars instigated by Reliance Jio have led to a stark reduction in EBIT of leading players such as Airtel and Idea Cellular thereby substantially reducing the interest coverage ratio. As the ability of leading telecom companies to service their outstanding debt declines, it becomes imperative for the Government of India to step in and prevent an increase in non-performing assets. Following are our recommendations:1. Deferred Payment Liability – Spectrum auctions leave a huge dent on the balance sheet of telecom companies. This is expected to continue in the coming years as India makes the transition to 5G. As a result, there is a need to increase the time required for repayment of spectrum purchases. This would provide immediate relief for telecom majors as well as space out the debt over a longer period.2. Ease of Mergers and Acquisitions – Existing licensing, spectrum trading and M laws within India are cumbersome and lead to high litigation costs for companies. Removing such barriers to M within telecom through streamlined processes would promote consolidation in the sector.3. Dispense mandatory contribution to USO Fund – The USO or Universal Service Obligation fund was established to promote spread of ICT services across the remote or poorer regions in the country. With India reaching 1.17 billion subscribers in October 2017, there is a strong argument to suggest that telecom companies should no longer need to pay the mandatory 5% license fee towards USO.4. Lower tax levies and spectrum usage charge – With the introduction of GST, telecom services were put in the 18% tax. This led to a significant impact on the already bleeding balance sheets of telecom majors. To prevent rising debt, it would be advisable for the government to reposition telecom services in a lower tax bracket as well as reduce minimum spectrum usage charges.——————————————-