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The five telecom honchos who met the Prime Minister on Wednesday have sought a bailout package for the industry whose margins are under pressure. The executives have given a wish-list to Communications and IT Minister which includes fixing annual revenue share at 6 per cent and deriving 2G spectrum price through an auction.
Mr Sunil Mittal, Chairman, Bharti Airtel, and Mr Anil Ambani, Chairman, Reliance Communications, were part of the group which presented a unified front in raising common concerns facing the industry. Mr Vittorio Colao, CEO, Vodafone Plc, Mr Kumar Mangalam Birla, Chairman, Idea Cellular, and Mr Ishaat Hussain, Director, Tata Sons, were also present for the meetings.
Met other ministers
Apart from the Prime Minister, the industry group met the Finance Minister, the Communications and IT Minister, the Commerce Minister and the Chairman of the Telecom Regulatory Authority of India.
A letter sent to the Telecom Minister, Mr Kapil Sibal, and signed by all the five honchos stated, “The industry has thus been brought to crisis point to the extent that the future of the industry is under threat, particularly for critical investments in infrastructure in rural India. Operators are still struggling to achieve profitability despite the fact that the initial 20-year licence terms begin to come up for extension in three years.
“The transition from narrowband to broadband services requires ever increasing scale and capital investment. However, with the policy and regulatory environment being highly uncertain, it is becoming increasingly impossible to ensure sustainability. If these fundamentals are not addressed, Indian economic development is seriously at risk.”
The executives said there was a need to balance the mobile industry's growth and investment and provision of affordable services with revenue generation for the country. “The current licence fee, spectrum charges and other taxes/ levies are extremely onerous and stifling investment in the sector,” the letter said. They sought a stable regulatory and fiscal regime with long term policy without any mid term surprises. Commitments on contracts need to be honoured by the Government and ensure equity and level playing field amongst all players, they said.
FDI in telecom sector
Current trends indicate significant reversal in FDI inflows and capex outlays. FDI in telecom sector in India has come down sharply by almost 35 per cent in the last year. Investments in sector by leading operators are down by 50 per cent. Mobile operators in the country are experiencing declining financial performance as they are facing the pressures of intensive competition, falling tariffs and ARPUs and declining minutes of usage coupled with significant increase in operating expenses, growing burden of duties and levies, increased costs of compliance and a punitive penalty regime.
To add to the above, rising interest rates have resulted in increase in debt servicing costs for operators coupled with the impacts of adverse changes in foreign exchange rates. Consequently, operators are under immense margin pressures with several operators reporting negative profits after tax or a negative or low return on capital employed.
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