The rupee is the telecom industry’s new problem, just when it was recovering from spectrum blues thanks to the industry regulator’s words of support.
Recent recommendations from the Telecom Regulatory Authority of India on spectrum allocation — which caused a corruption scandal and then an industry-government gridlock — means consumers won’t face tariff increases anytime soon.
Trai has proposed up to 80% cuts in minimum auction prices for mobile phone spectrum. But costs may be going up elsewhere.
With handsets worth Rs. 36,000 crore being imported in India every year and even domestic companies buying components from abroad, the rupee’s fall is hitting both hard – although last week’s recovery in the currency may be a relief. However, both imported and domestically-manufactured handsets have turned dearer in recent months, in some cases by as much as 15% if the US dollar trades at around `67 — though it has recovered from that level.
And with the rupee still down 21% against the US dollar since May 2 despite its recent recovery, prices are likely to increase even more. While imported handsets are expected to cost 15% more, domestically-manufactured handsets are likely to be 6-7% more expensive.
That means consumer budgets for telecom will be squeezed.
“Till now the industry had configured the depreciation of the rupee from 48 to 57,” said Pankaj Mohindroo, national president, Indian Cellular Association (ICA).” The current fall has caught everyone by surprise. We will see the real impact of the rupee’s fall in the next one month.”
Moreover, with a large part of their debt being in denominated dollars, operators are also likely to feel the pinch especially if the US Fed begins scaling back its monetary stimulus programme, leading to further decline in the rupee’s value.
For now, however, the industry rules out any such impact.
“Different firms have different levels of foreign debt and hence the impact of rupee’s depreciation on them is different,” said Rajan S Mathews, director-general, Cellular Operators Association of India, the lobby for GSM service providers. “Incumbent operators have high foreign debt, while new operators have low foreign debt. Tariff is driven by competition.”
Bharti Airtel, India’s largest telecom service provider, has a foreign debt of about $10 billion (around Rs. 62,000 crore) , the highest in the industry. The company, however, said the rupee’s fall will not have much impact.
“Our global debt of about $10 billion is in various currencies and across 20 countries,” a Airtel spokesperson said. “Dollar-rupee movement impacts only the dollar-denominated debt taken in India, which is about $500 million. As far as debt in rupee terms is concerned, we have net cash against net debt currently on a consolidated basis in India.”
Reliance Communications has the second-highest debt in the industry. The firm had a debt of Rs. 38,000 crore as on June 30, 2013, and about 60% of it was in foreign exchange. Company executives, however, ruled out any impact of a falling rupee.
A spokesperson said RCom will face “very little impact” as its Reliance Globalcom business generates around Rs. 7,000 crore in revenues per year in hard currency. “RCom’s foreign currency debt is low-cost debt of long-term maturity, which is much cheaper over the tenure of the debt compared to rupee debt, even after considering the impact of rupee’s fall,” the spokesperson added.