India’s mobile service provider industry is highly distressed, where it comes to ability to generate sustainable revenues at a level sufficient to cover its debt. Airtel’s ability to cover its interest payments is about 0.6 percent. Idea, merging with Vodafone, does not even have that level of ability to cover its interest payments, according to the Financial Express.
TRAI, the telecom regulatory agency, does not believe additional consolidation is forthcoming in India’s telecom industry. The debt profile, and spreading competition (now that Reliance Jio plans to disrupt the fixed line industry) might suggest that optimism is misplaced, longer term, even if major rearrangement of the mobile segment seems stable for now. In the past, debt issues of this magnitude have always lead to consolidation.
According to Credit Suisse, all telecom debt in the country is owed by companies that have an interest cover of less than one percent. Some two years ago, just 35 percent of service providers were in that condition, Credit Suisse says. Debt coverage has worsened, in other words, over the last two years.
Debt caused Aircel to file for bankruptcy. Reliance Communications likewise decided to get out of the mobile business because of debt issues. That degree of exposure naturally raises the question of how mobile operators can afford to bid on new 5G spectrum.
With the caveat that every country has the right to manage its spectrum resources and policies as it chooses, many would say the Indian government has to make a choice. Does it want to foster a sustainable 5G industry or does it want to raise revenue?
At the moment, it seems unlikely that mobile operators can afford to pay for existing spectrum commitments, much less new 5G spectrum.
