Capex ruling won't drop signal for telcos
Supreme Court ruling on Monday on treating annual licence fees paid by telecommunication companies as capital expenditure is likely to create a hump in their tax outgo. But the effects over the entire licence period should not be significant. This is because the switch in accounting will raise future amortisation and depreciation charges.
The industry has anyway been offered a moratorium on spectrum and adjusted gross revenues (AGR) on which the government collects its levies, including licence fees. Although AGR has risen with the telecom industry's revenue as companies found pricing power with increasing data usage, the bailout package is supporting front-loaded capital expenditure on 5G networks. Telcos are yet to monetise 5G services and should be able to absorb the tax impact of the Supreme Court verdict.
The ruling is among a series of highly litigated regulatory unravelling that puts the industry on a clearer path to growth.
GoI has tweaked its approach to spectrum pricing, revenue sharing and sundry other charges based on judicial review. The big issues confronting the industry are behind it, and the competitive intensity is adequate to ensure sustainable profits.
The industry is concentrating as unprecedented revenue streams open up in current generation networks.
Debt levels have stabilised as networks are densified for a surge in 5G data traffic. Operators are also poised to increase revenue shares from enterprise communications, digital and cloud services, and data centres.
The telecom industry and GoI have a shared interest in providing a robust backbone for India's digital economy. The courts have also done their bit to untie the regulatory knots that were holding back the process.
