Mint Explainer | How the West Asia conflict and tariff hike delays could affect telecom operators

The impact of higher fuel costs due to the conflict in West Asia, along with a delay in tariff increases that’s limiting revenue growth, is expected to weigh on the financials of India’s telecom companies in the near term, according to analysts. Mint analyzes how the mismatch between high costs and limited scope for charging customers is likely to put pressure on telecom operators.Telecom operators rely on diesel-powered generators to ensure uninterrupted power supply to telecom towers, which form the backbone of mobile networks.

With the blockade of the Strait of Hormuz, a key conduit for global oil supplies, constraints in procuring diesel, along with rising fuel prices,are expected to increase energy costs for telcos.Analysts said broader inflationary pressures due to the war could reduce chances for operators to increase tariffs of recharge plans.An increase in the prices of network equipment and chips, along with longer delivery times, which vendors such as Nokia have already started flagging, is expected to affect telecom operators. Currency fluctuations and continuing high interest rates have made importing network equipment and funding capital expenditure more expensive.According to brokerage house IIFL Capital, energy costs account for 10% of India mobile revenue and 6% of India revenue for Bharti Airtel.

For Vodafone Idea, it is 12% of revenue.“While telcos do not split out energy costs between electricity, solar and diesel costs, we estimate that diesel accounts for 25-35% of energy costs,” analysts at the brokerage house said in a note dated 6 April. Going by the December quarter earnings, Airtel’s energy costs would be about ₹2,865 crore, of which diesel would have cost over ₹700 crore.The brokerage