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Union cabinet approves proposals to mitigate telecom sector’s financial stress

A telecom tower

The Union Cabinet chaired by Prime Minister Narendra Modi approved proposals for mitigating financial stress being faced by telecom service sector on November 20. Under the approval, the Department of Telecommunication (DoT) will provide an option to telecom companies to defer payment of the spectrum auction installments that are due for 2020-2021 and 2021-2022, either for one or both years. This comes soon after Airtel, Vodafone Idea and Jio said they will increase phone call and data tariffs.

Other provisions of the proposals

  • The deferred amounts bill will be equally divided among the remaining installments to be paid by TSPs
  • Interest will be charged as stipulated while auctioning off the concerned spectrum in order to protect Net Present Value (NPV)
  • The decision of deferring spectrum payment installments for two years will be implemented within 2 weeks.
  • The deferment of spectrum auction installments will ease cash outflow of stressed TSPs, the government said. It will facilitate payment of statutory liability and interest on bank loans.

The cabinet decision is based on the recommendation by a committee of secretaries (CoS) headed by Cabinet Secretary Rajiv Gauba. This move will offer an estimated Rs 42,000-crore overall relief to Airtel, Vodafone-Idea, and Jio for the next two years, per Business Standard. While Vodafone Idea has received the maximum relief of more than Rs 24,500 crore, Airtel and Jio’s moratorium is pegged at around Rs 11,000 crore and Rs 6,800 crore, respectively, the report said.

The telecom lobby Cellular Operators Association of India (COAI) thanked Telecom Minister Ravi Shankar Prasad and DoT for the proposals and said that it will provide immediate cash flow relief to the industry, per Business Standard. However, COAI has pointed out that a high level of levies and taxes continued to be a challenge for the sector, the report said.

Issues CoS will examine

According to the DoT’s notification last month, the other issues that the CoS will look into are:

  • Review of USOF charges: It will review the Universal Service Obligation Fund (USOF) charges. The USOF charges are currently at 5% and TRAI has recommended reducing it to 3% so that an effective license fee is reduced to 6% (compared to 8%). USO funds are disbursed by the government to expand internet and mobile connectivity in rural areas.
  • Review of the Spectrum-Usage-Charges: The Telecom Service Providers (TSP) have requested for reduction of Spectrum-Sage-Charges (SUC). In 2017, TRAI had given recommendations on reducing the SUC charges and later the DoT suggested it to review them as this was causing a burden on the telecom sector’s financial health. SUC is levied on mobile services companies as a percentage of their adjusted gross revenue (AGR) and is payable as per the spectrum slabs by the government from time to time.

The DoT had also made a note of the following points regarding the financial performance of TSPs, in October:

  • The aggregate gross revenue of the industry for the period between 2017-2018 and 2018-2019 has decreased.
  • The price of data for the customer at an average of Rs 8 per GB is the lowest in the world.
  • The average revenue per user (ARPU) per month has declined from Rs 174 in 2014-2015 to Rs 113 in 2018-2019.

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