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Already Fighting the Tariff War, Telcos Have a New Villain: Ever-rising Fuel Prices

According to experts, the surging diesel prices over the past one month are likely to lead to a 50-to-60 basis points (bps) sequential dip in operating margins of telco biggies Vodafone Idea (VIL), Bharti Airtel, among others.

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Updated:September 14, 2018, 12:51 PM IST
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Already Fighting the Tariff War, Telcos Have a New Villain: Ever-rising Fuel Prices
Image for representation. (Image: PTI)
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New Delhi: The Indian telecom industry’s financial instability is far from over. Adding to the tariff war after Reliance Jio’s introduction to the market, telcos have a new villain: the ever-rising fuel prices.

According to experts, the surging diesel prices over the past one month are likely to lead to a 50-to-60 basis points (bps) sequential dip in operating margins of telco biggies Vodafone Idea (VIL), Bharti Airtel, among others.

Diesel prices have risen about 7 percent since August 1.

“The telecom companies are now facing a dual problem. On one hand they cannot raise call rates to pass on the pressure to consumers and on the others they also cannot continue with rising operating costs. It’s a fix that the telcos will take some time to recover from,” said a top government official on condition of anonymity.

The telecom industry is significant buyer of diesel and is estimated to run up annual spends of nearly Rs 9,000 crore to consume some 200 crore litres of the fuel.

Another official raised the concern of roughly 2 percent dip in quarterly revenue for telcos if fuel prices do not stabilise. This comes at a time when the sector is already reeling under nearly Rs 8 lakh crore of debt.

Experts are of the opinion that petrol and diesel prices will surge further due to lack of supply in the global oil market.

“In the near future we can expect fuel prices to go further up, especially due to the geopolitics involving Iranian oil that is obviously creating a shortage of oil in the market,” said Jaijit Bhattarcharya, Partner, KPMG.

Petrol prices hit lifetime high when the Rs 90 a litre mark was breached in Maharashtra on Tuesday.

India is currently facing the dual problem of constantly depreciating rupee as well. The burgeoning problem of currency is coupled with India’s current-account deficit at a five-year high, elevated oil prices and an emerging-market sell-off. This has resulted in rupee becoming the worst performing currency in Asia, registering a fall of almost 9 percent starting March this year.

At this time of economic turmoil, pressure on the Reserve Bank of India (RBI) to take stringent action is multiplying by the day. The Centre has written to the central bank seeking “aggressive steps” for curbing rates. The RBI has already raised interest rates twice since June and depleted billions of dollars to bolster the currency, but with little success.
| Edited by: Ashutosh Tripathi
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