As fledgling telecom sector looks towards the government for some relief, the Inter Ministerial Group formed to look into the woes of mobile operators will take a few more days before reaching any consensus…

NEW DELHI, AUGUST 11, 2017: Telecom operators that have been reeling under financial stress post entry of Reliance Jio will have to wait a bit longer for relief as the Inter Ministerial Group (IMG) on telecom is still undecided over the nature of relief that could be provided to them.

The government-appointed panel will met on Friday, however, some major decisions like reducing license fee (LF), spectrum usage charge (SUC) and scrapping of Universal Service Obligation Fund might not be taken keeping in mind the “green shoots” that indicates revival of the sector. IMG took stock of the situation and debated reports about normalcy returning to the sector as indicated in the April-June 2017-18 quarter performance.

But there might be some relief to operators regarding their demand for increasing the moratorium period as well as installments for deferred payment for spectrum acquisition. Telecom industry’s total debt stands at around Rs 4.60 lakh crore. It has bought spectrum since 2010 worth Rs 3.45 lakh crore for which an upfront payment of Rs 1.90 lakh crore has been made and the balance Rs 3.08 lakh crore needs to be paid up to 2028-29. Increasing the deferred payment and moratorium period would help improve the cash flow position of the companies.

IMG is now scheduled to meet on August 17 and 18 to finalise the report after which it will be placed before the Telecom Commission (TC).

Significantly, Finance Ministry officials on the panel have been opposing reduction in SUC and license which would lead to a decline in government’s revenue, while scrapping of USO Fund could adversely impact government’s various initiatives like the Bharat Net programme and mobile connectivity in remote, unconnected areas like the North East and Naxal-affected states.

Mobile operators have been demanding reduction in license fee to around 1% of their adjusted gross revenue against 8% currently. Similarly, they have also demanded that SUC be brought down to 1% of AGR against 3% at present.

Notably, the latest Economic Survey has highlighted precarious financial situation of the telecom sector and the rise in non-performing assets (NPAs). Stiff competition, price war and reduced revenue has trapped telecom sector into highly leveraged with interest coverage ratio turning less than 1 since Q3 of 2016-17. It has also witnessed declining Earnings before Interest and Taxes (EBIT) by Sales ratio. The industry also faces the issue of higher spectrum charges, it said.

“However, what’s worrying is that the share of the telecom sector in the NPAs has now increased. Though the total NPAs of telecom sector in Public Sector Banks (PSBs) has fallen to Rs 2,335 crore in 2016-17 from Rs 3,465 crore in 2015-16, the share of NPAs of telecom sector in total NPAs of infrastructure sector increased to 8.7% in 2016-17 from 5% in 2015-16,” the Survey added.

It further said that after launching of services by the new entrant (Reliance Jio) in September 2016, the average revenue per user (ARPU) for the industry on aggregate has come down by 22% vis-à-vis the long term (December 2009-June 2016) ARPU, and by about 32% since September 2016.

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