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COAI knocks on government’s doors for relief package, demands reduced taxes and easier payment terms 

Long-standing issues involving floor price tariffs, license fee reductions, and the government’s definition of calculating were raised in the letter addressed to the DoT. 

The telecom industry is seeking a relief package from the Indian government in its recent communication through the Cellular Operators Association of India (COAI), according to a Financial Express report. COAI’s missive dated August 17, 2021, a copy of which has been reviewed by MediaNama, touches upon reduction in levies, an extension of tenure of spectrum lease, and easier payment terms to service debts. 

The telecom industry is one of the most cutthroat sectors in India. Apart from pending dues worth Rs 1.4 lakh crore, many years of competitive pricing have affected the revenue benchmarks of Indian telcos leaving them in a precarious state. 

What is the telecom industry demanding? 

The letter addressed to the department of telecommunications (DoT) requests the following: 

Relief from the burden of taxes and levies

  • Reduction of License Fee (LF) from three percent to one percent of Adjusted Gross Revenue (AGR) for telecom service providers (TSPs) to cover administrative and regulatory costs.
  • Lowering of the weighted average Spectrum Usage Charge (SUC) by three percent for all TSPs.
  • Limit of one percent on the present five percent of AGR Universal Service Obligation Fund contribution for all the TSPs.
  • Reduced USO levies to TSPs for additional coverage of villages.

Increased tenure & easier payment terms

COAI said that the current interest rates for deferred payment liabilities (ranging from nine percent to ten percent) are prohibitive.

  • Doubling of tenure of auctioned spectrum holdings, present and future, to a period of 40 years from the existing 20-year period
  • Reduction of reserve price to alleviate financial burden incurred for purchasing 5G equipment
  • Moratorium on existing and future spectrum payments should be stretched to 7-10 years from the current 2 years 
  • Reduction in the interest rate on all outstanding deferred payment liabilities incurred in the acquisition of spectrum during auction to four percent or less
  • Application of the reduced interest rate to outstanding AGR dues
  • Make the interest rate a standard rate for future auctions 

AGR definition review

  • COAI demanded that the definition of calculating AGR (which is used for computing license fees) should be streamlined to include only telecom revenues from users and exclude non-telecom revenue.
  • It also requested DoT to expedite the completion of the TRAI consultation paper on floor price for tariffs. The industry has been demanding a floor price since 2019 as it believes it to be crucial for increasing ARPU. 

Financial and Performance Bank Guarantees (BGs) waiver

  • Grant a waiver on submission of financial and performance bank guarantees (BGs)

 COAI stated that BGs are a financial burden on TSPs as with “the current perception on the health of the sector, the banks are refusing BGs or demanding huge margin money”.

Audits and Penalties

  • Reduction of bare minimum compliance, approval, and audit requirements
  • Permission to replace audits with self-certification/exceptional audits and rationalised penalties

COAI claims that TSPs submit approximately 21,000 compliances in a year to various authorities. “TSPs are also subjected to huge penalties in thousands of crores for procedural issues or hyper technical interpretations by DoT LSA units” read the missive.

It must be noted that this is not the first time COAI has requested aid from the government. COAI urged for a moratorium of 3 years for paying AGR dues, setting up of floor price for tariffs, and reducing license fee to “make the telecom sector sustainable” in March, 2020.

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Problems ailing the telecom industry

  • Indian telcos suffered a blow when the Supreme Court of India upheld the DoT’s definition of AGR in October 2020 giving rise to dues of Rs 1.4 lakh crore to be paid to the government. The case was under litigation for 14 years.
  • Companies owe the government not only the shortfall in AGR for the past 14 years but also an interest on that amount along with penalty and interest on the penalty. Out of the Rs 1.4 lakh crore, only twenty-five percent consists of the actual dues.
  • The industry is also under a debt of over Rs 4 lakh crore stressing its bottom line.
  •  Tariffs are among the lowest globally triggered by the entry of Reliance Jio as it offered cheap plans paving the way for intense competition. It affected the ARPU of most telcos which had already been falling for years. The tariffs were hiked by the companies in 2019.
  • The industry is currently testing the 5G technology which should be launched soon. The 5G equipment is expensive due to the customs duties in place. Telcos were hoping that the duties will be waived off in the 2021 budget but it did not happen.

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