Take the call on telecom

After being a spectator to the decline in the telecom industry’s fortunes, the government finally seems to be swinging into action. First, the inter-ministerial group set up to resolve financial stress in the sector will meet representatives of networks to get a fix on their distress. This will be followed by a meeting between Telecom Minister Manoj Sinha and owners and chief executive officers (CEOs) of networks, after which a solution is expected to be announced by the end of the month. In between, Telecom Regulatory Authority of India (Trai) Chairman R S Sharma, too, has called telecom CEOs to assess their pain. These are welcome steps and the government must ensure that the above schedule is adhered to because the sector is gasping for breath. Of the five listed networks, only one, Bharti Airtel, made a profit last quarter. Reliance Communications has already defaulted on its payments. The matter needs urgent action because further delay could lead to a full-blown crisis in this sector.

Signs of the worsening health of the sector have been around for several months. The networks began to report a sharp decline in revenue after Reliance Jio entered the market in September offering inexpensive data (free for six months) and free voice calls. This caused a shortfall in the various levies the government collects on the adjusted gross revenues of the networks. Then the Reserve Bank of India (RBI) came out with guidelines to step up standard provisioning in stressed sectors, starting with telecom. As the interest coverage ratio of the networks fell below one — implying their operating profit was not enough to meet their interest obligations — the RBI asked banks to review the sector latest by June 30. It asked them to “consider making provisions for standard assets in this sector at higher rates so that necessary resilience is built in the balance sheets should the stress reflect on the quality of exposure to the sector at a later date”. The increased provisioning is expected to impact the profits of banks.

What is needed now is the political will to take some strong action, the way the Atal Bihari Vajpayee government did more than 15 years ago when it moved the networks from a regime of fixed licence fees to one of revenue sharing. At that time, too, the networks were in dire straits, but the government's policy intervention restored their financial health and eventually unleashed the telecom revolution in the country: India today has the second largest base of subscribers in the world after China. Similar will and foresight is required from the current government. Any prevarication at this stage could unravel India’s telecom story. There is a broad consensus on what needs to be done. Trai has made several suggestions to improve the health of the sector. These include reducing the spectrum user charge from around 6 per cent of the adjusted gross revenue to 3 per cent and then to 1 per cent, the licence fee from 8 per cent to 6 per cent, and the contribution to the Universal Services Obligation Fund from 5 per cent to 1 per cent. Trai has also suggested that networks be allowed to pay for spectrum over 20 years instead of the current 10 years. These are valid suggestions and could bring relief to the beleaguered networks.

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