The Great Telecom Handout: What Will the Government Do?

On Thursday, telecom minister Manoj Sinha will meet with various industry players to discuss their demands. Most banks and telecom operators (barring Reliance Jio) want a number of sops to prevent industry loans from turning into NPAs.

A peace meeting between Jio and COAI executives will take place today and possible on Monday. Credit: Reuters

A peace meeting between Jio and COAI executives will take place today and possible on Monday. Credit: Reuters

New Delhi: At a time when a chorus of demand for farm loan waivers of around Rs 3 lakh crore is growing, captains of the telecom industry will meet minister Manoj Sinha to seek relief for the industry that has a cumulative debt of Rs 4.5 lakh crore.

This debt becomes Rs 7.5 lakh crore if deferred payment over the next few years for spectrum is included. 

On Thursday, Anil Ambani (RCOM), Sunil Mittal (Bharti Airtel), Kumar Mangalam Birla (Idea) and Vittorio Colao (Vodafone) will meet Sinha and seek the lowering of both licence fee and GST fees and ask for the restructuring of a deferred payment on the spectrum fee among other demands.

Reliance Jio – which is at loggerheads with incumbent operators over various issues – will be represented by Mahendra Nahata, a close associate of Mukesh Ambani and a shareholder in Reliance Jio.

India’s banking sector has also clamoured for relief measures for the telecom operators over the last few months, as they fear that their exposure to the sector would soon start becoming non-performing assets (NPAs).

Historical comparisons

Today’s situation closely resembles the industry in 1999, when companies weren’t able to pay the annual fee for the licences that they won through an auction. The-then NDA government steered operators away from the fixed licence fee regime to a revenue-share model. Under the new system, the operator paid 15% of adjusted gross revenue as a fee. It was later reduced to 10%, 8% and 6% for category ‘A’, ‘B’, and ‘C’ circles in 2003 under the Unified Access Services Licence regime, while Reliance was allowed to offer pan-India mobile services.

“It is important that the government gives any relief only on merit and should not come under any pressure,” said B. K. Syngal, former CMD of VSNL.

The current situation, however, is slightly different from the problem that operators were facing in 1999. Today’s scenario has been aggravated by the entry of Reliance Jio, which offered free data and voice services for nearly six months. It would later go on to charge Rs 99 per year for unlimited voice and data. 

“The only relief that the government can give is by lowering various taxes or deferred payment of licence fee, otherwise it would become controversial,” said D.P.S. Seth, former member Telecom Regulatory Authority of India (TRAI), “interconnect usage charge (IUC) should not be part of this exercise.” 

IUC has become an increasingly contentious issue over the last year as Reliance Jio wants a zero IUC regime, while incumbent operators would like IUC to be increased. When a customer of one operator (say Vodafone) calls the subscriber of another operator (say Airtel), Vodafone pays IUC to Airtel. Presently, IUC charges are 14 paise per minute. For incumbent operators, generally the number of incoming calls is equal to the number of outgoing calls.

Current discussions

The government has formed an inter-ministerial group comprising senior officials (joint secretary and above) of telecom ministry and finance ministry.

“It is a tricky situation. If we recommend any relief for the operators, it will bring down government revenues, which are already low after entry of Reliance Jio. If we don’t give any relief there are chances that the debt of the industry would become NPAs,” said a member of IMG. “We may not consider demand of operators to change IUC,” said the member.

Last week, all telecom service providers presented their views on relief package before the IMG in one-on-one meetings. The following are excerpts of presentations given by Reliance Jio, Bharti Airtel and Idea Cellular.

Reliance Jio:

  1.   Debt equity ratio in Indian telcos is very high – 1:1.5 for Bharti Airtel and RCOM and 1:2 for Idea Cellular.
  2.   No new equity investment by incumbent operators. Incumbent operators should infuse about Rs 1.25 lakh crore equity.
  3.   Deferred payment option without any control is not good for the industry.
  4.   Big three operators – Airtel, Idea and Vodafone have marginalised small players.
  5.   Reduce GST to 12% from 18%.
  6.   Big three operators are not allowing reduction in IUC.

Bharti Airtel:

  1.   Reliance Jio has misrepresented facts. Total capex and spectrum cost of Airtel is 1.25 lakh crore, while debt is Rs 42,000 crore.
  2.   There should be level playing field for all operators. IUC should be cost based and should be increased.
  3.   Licence fee should be reduced from 8% to 3%.
  4.   Moratorium on deferred payment on licence fee should be increased from two to five years.
  5.   Number of installments should be increased from ten to 15 years
  6.   Interest rates should be set at ten-year G-Sec rates.

Idea Cellular:

  1.   Idea Cellular has made an investment of Rs 1.24 lakh crore till date.
  2.   IUC should be increased from 14 paise per minute to stop predatory pricing.
  3.   There should be a floor price for voice and data.
  4.   Lower GST rates to 5%.
  5.   Number of installment for deferred licence fee payment should be increased for the whole 20-year period of licence
  6.   Reduce licence fee to 3%

There is no doubt that at a revenue of about Rs 2.11 lakh crore and EBITDA of Rs 50,000 crore, it is difficult to serve a debt of Rs 4.5 lakh crore. However, the government will have to be cautious as there remains a thin line between crony capitalism and genuine relief.

Manoj Gairola is Editor, Telecom Tiger.

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