Editorial

Lifeline for telecom

| Updated on September 15, 2021

The telecom sector has received a much-needed relief package from the government   -  VV Krishnan

The reforms unleashed in the relief package for telecom is a timely rescue act

The relief package announced by the Centre for the telecom operators could unshackle a sector that has been groaning under huge debt, low profit and declining cash flows for the past few years. The slew of reforms unleashed now is aimed at not only improving the financial viability of the sector but also reducing procedural hassles impeding the provision of quality services to consumers. Over the last 20 years, the telecom sector has turned out to be a graveyard for over two dozen companies, leading to massive erosion of value for stakeholders. India’s telecom market is at the brink of becoming a duopoly with two of four key operators struggling to stay afloat. But at the same time, the Centre wants to create a digital infrastructure to provide utility services like banking, education and healthcare to all. The shift from voice to data services has meant that telecom operators have to invest billions in laying out new networks and acquiring spectrum to support bandwidth-guzzling applications.

In this context the new policy initiatives are aimed at offering much-needed respite to telcos. For instance, the decision to exclude non-telecom revenue on a prospective basis from the definition of AGR brings closure to a dispute which has been brewing since 2003. This along with the decision to give a four-year moratorium on AGR payments and spectrum dues purchased in past auctions should ease the financial burden on operators, especially Vodafone Idea. Vodafone Idea would have had to shell out about ₹9,000 crore towards the AGR payments by March 31, 2022 and over ₹15,000 crore during FY23 towards spectrum. The moratorium will help the industry in making debt repayments and undertaking capex. According to ICRA, the moratorium will yield an annual cash flow benefit of ₹46,000 crore for the industry. Analysts estimate industry debt at over ₹3.6 lakh crore, of which Vodafone Idea’s debt is pegged at nearly ₹2 lakh crore. The government can exercise the option of converting debt into equity at the end of the moratorium period. Allowing 100 per cent FDI through the automatic route will instil investor confidence.

Other measures including the abolishing penalties on license fee and spectrum usage charges, annual compounding of interest rates in place of monthly compounding and increasing the spectrum ownership tenure will improve the overall viability of the sector at least for the next four years. But if the Centre wants to ensure a long-term solution, it must bring down levies and taxes on telcos, who pay nearly 30 per cent of their revenues to the government. Since the operators are buying spectrum through an auction mechanism, there is no reason to continue collecting licence fee or spectrum usage charge in the form of revenue share. The reserve price for spectrum also needs to be brought down to match market sentiment. That said, the industry should focus on offering best quality services instead of riding on sops.

Published on September 15, 2021

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