Telecom - TRAI Recommends Cut in Licence Fee :: Edelweiss

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TRAI has released its recommendations on “Definition of Revenue Base for the Reckoning of Licence Fee and Spectrum Usage Charges.” It has revised the definition of Adjusted Gross Revenue (AGR) to exclude certain non-telecom related income and receipts from Universal Service Obligation (USO) fund. The regulator has also recommended cut in USO levy to 3% from current 5%, which will lead to reduction in licence fee to 6% from current 8%. The latter, if implemented, will lead to ~145bps EBITDA margin expansion for Idea Cellular’s (Idea) and Bharti Airtel’s (Bharti) India mobile business in FY16, translating into 2.9% and 4.3% increase in FY16E EBITDA, respectively.

TRAI recommendations: Key highlights

TRAI has recommended modification of AGR definition to exclude certain income not related to telecom operations such as income from dividend, interest, property rent, capital gains on sale of fixed assets & securities, forex gains, insurance claims, bad debts recovered and excess provisions written back. The regulator has also recommended exclusion of receipts from the USO fund from AGR computation. Although the modification of definition is incrementally positive, it is not likely to materially alter financials given negligible revenue contribution from listed sources of income.

TRAI has also recommended reduction in USO levy to 3% of AGR from 5% currently for all licences with effect from April 1, 2015. With this reduction, the applicable uniform rate of licence fee will become 6% (from current 8%) of AGR. Reduction in licence fee will lead to ~145bps increase in EBITDA margins for Idea’s and Bharti’s India mobile business. The increase in margins will lead to FY16E EBITDA of INR363bn for Bharti and INR123bn for Idea, which is 2.9% and 4.3% higher than our earlier estimates, respectively. Overall, impact on FY16 earnings of Bharti and Idea will be 8.8% and 9.9%, respectively.

There are a few other tweaks in the licensing regime such as exclusion of IP-I services (infrastructure services) from the licensing regime and exclusion of intra-circle roaming charges from AGR calculation. These changes are not likely to impact financials of telcos materially.

LINK
https://www.edelweiss.in/research/EdelFlash-Telecom--TRAI-Recommends-Cut-in-Licence-Fee/27965.html