FINANCIALLY STRESSED TELECOM SECTOR’S HOPES LIE ON IMG

Last week the inter-ministerial group on telecom met operators and banks to discuss on issues relating to loans/financial burden and their concerns on prevailing scenario in the mobile sector. Ironically, the IMG meeting, comprising officials from telecom and finance ministries, was held when Telecom Minister Manoj Sinha and Secretary Aruna Sunderarajan were not in the country. Here are the lists of demands/concerns raised by parties concerned…

NEW DELHI, JUNE 17, 2017: Top three incumbent operators — Bharti Airtel, Vodafone India and Idea Cellular — who have been accusing new entrant Reliance Jio of predatory pricing and changing financial dynamics of the telecom sector have demanded increase in interconnect usage (IUC) charges from current level of 14 paise. The demand comes amidst talks of lowering IUC which other operators say are high, a view which even the telecom regulator TRAI has been airing.

Airtel, Vodafoone and Idea told IMG that current IUC of 14 paise does not cover the cost of operations and the present IUC cost of 30 paise. If it is not increased, it will hurt mobile penetration in rural areas as companies would not invest in infrastructure. Companies who have invested in infrastructure need to be incentivised as providing services in rural areas was a costly affair.

The three operators also demanded scrapping of spectrum usage charge or to be capped at 3%, doing away with contributions to the USOF and bring the GST rate for telecom services to 12%. They also sought moratorium on paying interests on bank loans till financial stress being witnessed by the sector is gone. Significantly, since the entry of Reliance Jio, all major players have seen steep decline in their revenues and profits.

On the other hand, Reliance Jio Infocomm blamed incumbent players for the current financial crisis and drop in their revenues. It said incumbents were to be blamed for the current crisis as they failed to invest in new technologies and that they stretched their balancesheets through extensive borrowings without bringing in any equity money. It also accused Bharti Airtel, Vodafone India and Idea Cellular of having formed a cartel to milk the industry and hurting interests of subscribers.

Reliance Jio said all promoters should infuse equity worth Rs.1.25 lakh crore to reduce debt and improve their debt servicing ratio, and said that there was no need for banks to carry all the financial burden alone. Reliance Jio said it was unnecessarily being blamed for reducing revenues and profit margins of incumbent players and the “financial stress” in the sector, but the fact was that aggressive financing strategies and over-leveraged balance sheets of the operators were behind the incumbent operators’ financial mismanagement.

The Reliance Industries Ltd group company also blamed the top three incumbent players of forming a cartel which resulted in stifling the growth of telecom sector and marginalised other players, besides disadvantaging mobile users. It also blamed industry body, Cellular Operators Association of India (COAI) for serving the “vested interests” of the “three dominant operators”.

Reliance Jio also suggested reduction in government levies such as GST and License Fee to make the sector more competitive. If the government brings down the License Fee to 1% from current 8% and GST to 12% from the proposed 18%, it will help the sector save around Rs.20,000 crore.

Government-run firms BSNL and MTNL asked the IMG to reduce License Fee to 3% from the present 8% to help them come out financial problems and become more competitive. While BSNL asked DoT and USOF to clear all its dues at the earliest, MTNL asked the DoT to infuse Rs.10,000 crore in the debt-laden PSU for adoption of new technologies. MTNL also said the License Fee of 1% on landline and broadband provided through wireline should be made nil.

The banking sector officials told the IMG that though the situation was not grave, liquidity needs to be increased. Banks have given around Rs.2.6 lakh crore loans to the telecom players. Officials of State Bank of India, Punjab National Bank, HDFC Bank and Axis Bank said if the current trend of low revenues and declining profits continued, telecom industry might to into financial crisis and there might be some defaults. Banking sector has more financial exposure in sectors like steel and power compared to telecom sector.

However, banks supported some demands of telecom operators which they have been making to the government, which include allowing mortgage of spectrum as collateral, rationalising the tax structure in the industry by bringing down the Spectrum Usage Charge (SUC), the License Fee and contributions to the USOF. They also suggested increasing the duration of deferred payments to 20 years and rationalisation of GST rates.


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