Govt panel for sops to ease financial stress in telecom sector

The inter-ministerial group (IMG) set up to address the financial stress in the telecom sector has prepared a draft report recommending steps to benefit the industry, according to sources. It is learnt that Finance Minister Arun Jaitley reviewed the report last week.  

Extending the deferred payment schedule to 16 years, cut in interest rates and converting the PLR (prime lending rate) into the MCLR (marginal cost of funds-based lending rate) are among the measures being considered by the IMG, which has seven members including officials from the Department of Telecommunications (DoT) and the finance ministry.

The telecom operators’ plea for a reduction in spectrum usage charges (SUC) and goods and services tax (GST), however, has not found favour with the panel. Also, the panel is still deliberating on the issue of licence fee. 

The telecom industry has sought a reduction in licence fee, which currently stands at 8 per cent (including 5 per cent levy for the USO Fund, meant for rural telephony). Sources said all the members were in discussion on whether licence fee should be lowered or not.

On the issue of interconnect usage charges (IUC), the IMG is of the view that the decision taken by the Telecom Regulatory Authority of India (Trai) would be final. According to sources, the government is likely to accept telecom operators’ request for a hike in the duration of deferred spectrum payments from eight years to 16 years. If the payment period is extended, the cash flow of telcos could increase by Rs 55,000 crore, according to estimates.

In addition, the IMG is looking at cutting the interest on deferred payments from the 12 per cent PLR to the 8 per cent MCLR, which could mean cash flow benefits of Rs 20,000 crore.    

Regarding the issue of spectrum as collateral, the IMG is of the view that DoT guidelines will converge with the Reserve Bank of India (RBI) guidelines.  
The stress in the telecom sector intensified in recent months after Reliance Jio launched its services last September with deep discounts and free services.

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 expressed concern over the financial situation in the sector in various interactions with the government.

Ever since Reliance Jio entered the telecom space, country’s top operator Bharti Airtel has seen its net profit slide. It has been the same for others, including Vodafone, Idea Cellular and Reliance Communications.

In April, the RBI had asked banks to set aside higher provisioning for the telecom sector, indicating the growing problem of financial stress in the sector.

Respite in the offing for telcos
  • Increase in the period of deferred payments for spectrum from 8 years to 16 years 
  • Interest payment on deferred payments to be shifted from prime lending rate (12%) to the marginal cost of fund-based lending rate (8%) regime
  • DoT guidelines to be clubbed with RBI guidelines on the issue of spectrum as collateral
  • Deliberations on the licence fee, and if a cut is warranted, are still on
  • No relief on the GST rate of 18 % on telecom services

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