Telecom sector gets breather but will need structural changes to survive

Ayushi Kar / Thomas K Thomas Mumbai | Updated on September 21, 2021

Industry leaders say clarity on AGR definition helpful, but it is necessary to increase cashflow, reduce levies

The relief package announced by the Centre will provide only a temporary respite to debt-laden telecom operators by pushing back regulatory payouts for four years. The problems being faced by the sector can find long term solution only if the Centre brings down annual levies in the form of licence fees, and if operators are able to increase tariffs to ₹200 per user per month from ₹140.

The telecom sectors’ main concerns are around its huge debt of nearly ₹4-lakh crore and lack of growth in revenues that is proportionate to increasing data usage. The new package does not address either of these issues.

33% lost revenue

BK Syngal, former Chairman of VSNL, said, “No steps have been undertaken to reduce 8 per cent licence fee, spectrum charges or 18 per cent GST, all of which siphon off 33 per cent of the revenue earned by operators into the Government’s kitty. Without these problems being addressed, the industry will still paying high taxes which could have otherwise been invested back. The present package has merely delayed the inevitable.”

AGR verdict

While the decision to exclude non-telecom revenue from the adjusted gross revenue (AGR) definition will help operators in the future, it does not take away the existing burden of having to pay nearly ₹1-lakh crore as a consequence of the Supreme Court verdict.

Sanjay Kapoor, former CEO of Airtel, said, “The AGR definition issue is a problem of the past and the industry may have already morphed into circumventing this issue. However, clarity on the new AGR definition helps.”

The package does provide clarity on a number of issues including spectrum auction schedules, increase in spectrum ownership duration, and 100 per cent FDI through automatic rote.

Prashant Singhal, TMT Emerging Markers Leader,EY, said, “The package is going to bring clarity going forward which will help in getting investor confidence back to get foreign investment coming in.”

Increase cash flow

But the real hope for the industry would be to able to increase tariffs in the near future.

“A moratorium of 4 years gives enough time for the industry to carry out fundamental improvements by way of increasing tariffs which is critical from the industry perspective. During the next four years, operators can do a number of things including bringing in new investors, innovating on services and improving quality to increase cash flow so that by the time the moratorium is over, they will be in a position to make regulatory payouts,” said an industry expert.

T V Ramachandran, President, Broadband India Forum, said that clarity on AGR payments and extension of spectrum ownership by ten years are the two biggest reforms since New Telecom Policy 1999.

Published on September 15, 2021

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