No big bang sops for telcos: IMG suggests longer payment band for spectrum

The inter-ministerial group (IMG), formed to address the financial stress of telecom sector, has submitted its report suggesting measures including extension of the timeframe for spectrum payments and change in interest rates. However, it has not recommended any cut in licence fee or spectrum usage charges (SUC).

The IMG has recommended extending the deferred payment schedule to 16 years and converting the PLR (prime lending rate) to the MCLR (marginal cost of funds-based lending rate) as the primary relief measures for financially stressed telcos, it is learnt.  

The recommendations, industry players say, will help in the long run as these will have a bearing on future cash flows. But the proposals don’t address the current problems that have caused financial stress in the sector, they said.

It is disappointing that the IMG did not offer any relief on the licence fee and spectrum usage charges, an industry source said. Telcos were looking for reduction in USOF (Universal Service Obligation Fund) levy, which is currently at 5 per cent of AGR (adjusted gross revenue).

“We appreciate the government for increasing the deferred payment schedule and change on interest rates, but the fundamental issues remain," an industry representative said. The government is still protecting its revenue and no change in USOF levy is disappointing, he added.

The industry has been demanding that since telecom operators have already covered 90-95 per cent of the country in providing connectivity, the USOF levy should be waived or at least reduced.

The licence fee of 8 per cent includes 5 per cent USOF levy. Also, the IMG has not touched the issue of interconnect usage charges, saying that the Telecom Regulatory Authority of India (Trai) would take a call on the matter.

The longer duration of deferred spectrum payments, as recommended by IMG, could increase the cash flow of telecom operators by Rs 55,000 crore. Due to the change of PLR to MCLR, cash flow benefits of Rs 20,000 could accrue to telcos.

Rajan S Mathews, DG, Cellular Operators Association of India, a leading industry association,  told Business Standard, “We are grateful to the government for addressing the debt issue of the industry, but the systemic challenges for the industry still remain. We are disappointed that the fundamental problem of licence fee and spectrum usage charges in not addressed.”

The IMG — comprising senior officials from ministries of finance and communications — was constituted in mid-May to "examine systemic issues affecting viability and repayment capacity in the telecom sector and furnish recommendations for resolution of stressed assets".

The recommendations of the IMG will be placed before the Telecom Commission, which will meet next on September 8. The IMG's proposals will also require Cabinet nod.

The outstanding debt in the industry is pegged at Rs 4.5 lakh crore, incurred mainly on account of payments for spectrum, and other levies.

The industry has been locked in an intense tariff war following the entry of Reliance Jio last September. Incumbent operators have been flagging pressure on revenue and profitability, blaming the rock-bottom data tariffs and free offerings of Jio for deteriorating financial health of the sector.

Vodafone Group CEO Vittorio Colao had recently written to Telecom Minister Manoj Sinha, expressing concern over "unchecked price competition with services offered below cost for considerable periods of time". 

IMG Report

What it favoured

• Giving telcos more time to pay for the spectrum they bought
• Switching from prime lending rate to marginal cost of funds-based lending rate for interest and penalty payments with regard to licence fee and spectrum usage charges
• Relaxation of import licences

What it didn’t favour

• Big-bang reforms
• Any cut in licence fee or spectrum usage charges