India’s telcos, many burdened by debt and payments to the government, and facing competition from a well-heeled and aggressive new entrant, may finally have something to cheer about.
An inter-ministerial group (IMG), studying their problems, has completed its report and recommended stretching the duration of spectrum payments telcos have to make to the government to 16 years and also lowering the interest rate on interest payments, according to a person familiar with the matter who asked not to be identified.
India’s telcos had debt of Rs4.85 trillion on their books at the end of December, and owe the government Rs3 trillion over the next eight years. But they also face intense competition, and the average revenue per user for most telcos has fallen since Mukesh Ambani-controlled Reliance Jio Infocomm Ltd started commercial operations in September.
As profits fell, concern about the ability of the telcos to service their debt rose. On 4 April, the Reserve Bank of India (RBI) issued an advisory to banks to review their assets to telcos and set aside more funds against these loans.
Meanwhile, telcos started lobbying for a bailout.
Among their demands were: an increase in the payment period for spectrum to 18 years (a two-year moratorium and 16 years), against the current 10 (a two-year moratorium and eight years), a shift to the marginal cost of funds-based lending rate against the prime lending rate (their spectrum repayments also have an interest component that this change will reduce), a cut in the spectrum usage charge, and removing the cap on spectrum a telco can hold in an assigned area so as to promote consolidation.
IMG has agreed to the first two, is not sure about the third because things seem to be looking up for the business, and wants the telecom regulator to look into the cap on spectrum which is currently 50% in an assigned area (or circle), according to the person cited in the first instance.
The recommendations of the IMG will now be reviewed by the apex telecom policy making body, the Telecom Commission and will thereafter have to be cleared by the Union cabinet.
The person cited in the first instance added that the IMG has not put a number to the quantum of benefits telcos can hope to receive.
In June, IMG held extensive discussions with all telcos and large banks on the industry’s financial difficulties.
Not all telcos lobbied for the sops. Reliance Jio didn’t and blamed incumbent telcos for not investing enough in the business.
Separately, Reliance Jio on the one side, and Bharti Airtel, Vodafone India, and Idea Cellular on the other, have been scrapping over the interconnection regime the regulator is considering. Sunil Mittal, chairman of Bharti, and Kumar Mangalam Birla, chairman of Idea Cellular, have separately written to the telecom regulator arguing against any change to the current regime where telcos compensate each other (through an interconnection charge) for calls that originate in one network but end in another to one where there is no compensation. They argue that this will favour Reliance Jio because more calls will be made out of that telco’s network than to it.
Vodafone Group Plc CEO Vittorio Colao, had recently written to telecom minister Manoj Sinha expressing hope that the IMG would recommend “a reduction in the interest rates for deferred spectrum payments to 6.25% in line with the improved macroeconomic trends and an increase in the period of payment for spectrum". The Vodafone CEO, in the letter dated 22 August, also rued the sector’s deteriorating financial position over the last 9-12 months due to “unchecked price competition with services offered below cost for considerable periods of time".
Vodafone’s India unit is merging with Idea Cellular Ltd to create the country’s largest telecom operator.
A Mint staff writer contributed to this story.