Telecom turmoil: Govt forecasts 30% surge in revenue receipt

The government’s bold projections in the interim budget raise the stakes for telecom giants amid regulatory pressures and market dynamics.

On February 1, during the presentation of the interim budget by Union Finance Minister Nirmala Sitharaman, a notable point emerged regarding revenue receipt projections for the telecom sector. The central government anticipates a steady increase in earnings from this industry, potentially signalling forthcoming trends for telecom operators. This, however, may not turn out to be beneficial for the telcos.

This anticipated 30% annual rise in income amounts to a substantial Rs 1.2 lakh crore from a sector that has been adopting new technologies for driving growth during the past few quarters.

Between March 2023 and March 2025, the government’s revenue receipt from the telecom sector is likely to go up by over 85%, a massive increase in two years.

The rise of telco revenue for the government

Revenue earned from telecom operators has been on a steady rise. In FY23, the central government said it had earned Rs 64,835 crore (USD 7.8 billion) in revenue from telecom operators. In FY24, an initial projection had pegged telecom revenue to hit Rs 89,469 crore (USD 10.8 billion), which the Centre later revised to a higher end-March target of Rs 93,541 crore (US 11.3 billion).

This marked an eventual rise of nearly 44% YoY in telecom revenue between the last financial year and the current, ongoing one that is set to end on 31 March. Further, the Rs 1.2 lakh crore (USD 14.5 billion) target set for FY25 marks a further 29% YoY increase in the upcoming financial year. Cumulatively, between March 2023 and March 2025, the government’s revenue receipt from the telecom sector is likely to go up by over 85%, a massive increase within two years.

The revenue expectations are largely driven by private-sector telecom operators, namely Bharti Airtel, Reliance Jio, and Vodafone-Idea. The three operators, as per the Telecom Regulatory Authority of India’s (TRAI’s) November 2023 data published on 29 January, comprise over 95% of the entire wireless and wired network services in India. In FY23, the three operators taken together had earned net operating revenue of Rs 2.72 lakh crore (USD 32.8 billion), a figure that is almost certain to exceed Rs 3 lakh crore (USD 36 billion) by FY25.

Why is the government estimate so high?

To understand this, it is important to understand what comprises the government’s receipts of telecom revenue. At the very core of this revenue expectation are receipts of adjusted gross revenue (AGR) payouts by the telecom operators, which come through licensing fees and spectrum usage charges (SUCs) that the telcos pay. Pending fees and payouts of AGR exceed lakhs of crore every year, but due to the staggered payout schemes of such revenue, telecom revenue takes into account only the share that is due each year.

Further to this, the next biggest contributory factor behind telecom revenue for the Centre comes from spectrum auctions, which are typically sold at sky-high prices. These price slabs contribute massively to the government’s revenue, although each year the progress on auctions is different. Following the Budget, Union IT minister Ashwini Vaishnaw said at a press conference that the government expects higher telecom revenue in FY25 due to the “robust” health of the telecom sector, and also through an upcoming limited spectrum auction.

Industry experts and analysts, however, point out that even taking due AGRs from the three main telcos and the spectrum auction into account, the revenue expectation is steep. Media reports of the budget analysis further indicate that factors such as the advent of enterprise 5G network demand among industries for smart factory floor automation and other similar applications remain bleak. Further, satellite-based communication services, which are expected to commence operations this year, are not expected to be majority contributors to telecom revenue, and in turn the government’s earnings—since they are yet to even begin, and initial demand is only expected to be tepid and gradual at best.

In FY24, an initial projection had pegged telecom revenue to hit Rs 89,469 crore, which the Centre later revised to a higher end-March target of Rs 93,541 crore.

The Centre’s revenue estimate from telecom operators, therefore, points to any abolition of fees levied to telecom operators highly unlikely going forward any time for now. Reliefs sought by the telecom operators ahead of the budget include reducing regulatory levies like license fees, deferring USOF contributions till the existing funds are exhausted, customs duty exemptions on telecom equipment, waiving GST on regulatory payments, and refunding input tax credit or ITC, among others.

As a result, it now remains to be seen how the rest of FY24 and FY25 progresses for telecom companies. Steep expectations suggest existing fees and charges will not be revised. Telcos, however, have their work cut out. They face pressure from competitive expansion and low global average revenues per user. Tariff hikes may follow. Past lobbying for preferential data pricing raised net neutrality concerns. These factors clarify the revenue demands and expectations from telcos.

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