Ailing Telcos Seek Financing Body, Tax-Free Bonds From Budget

The Cellular Operators Association of India (COAI) has sought incentives such as an option to issue tax free bonds as well as creation of a separate financing body which would provide cheaper loans to telecom operators as they battle shrinking revenue streams in the midst of a heated tariff war in the sector.

The telco lobby group has also sought for access to long term, low cost debt for infrastructure projects to be provided by Infrastructure Debt Funds, according to a presentation made by COAI to the department of telecommunications ahead of the budget. Mint has seen a copy of the presentation.

Infrastructure Debt Funds are investment vehicles which can be sponsored by commercial banks and NBFCs in India in which domestic/offshore institutional investors such as insurance and pension funds can invest through units and bonds issued by the IDFs. These funds essentially act as vehicles for refinancing existing debt of infrastructure companies.

The Indian telecom sector has seen intense disruption following the entry of Reliance Jio in September 2016 which brought down data tariffs to rock-bottom and made voice calls free. Operators which were forced to match these tariffs either shut shop or were acquired by bigger players. Only two private players Bharti Airtel and Vodafone Idea, who are both under heavy debt and are incurring losses, are competing with Jio now, which has been profitable for five quarters.

Airtel’s India wireless business posted a loss of Rs. 1,377.8 crore in the March quarter, almost triple the Rs. 482.2 crore loss it posted in the year-ago period. Vodafone Idea, which is India’s largest telecom operator by subscribers, posted a net loss of Rs. 4,881.9 crore in the March quarter and its net debt stands at₹1.18 trillion.

“Telecom/ telecom infrastructure sectors should be allowed to issue tax free bonds to reduce the overall cost of capital and mobilize cheaper funds & thereby help achieve the national vision of a connected India,” the presentation said.

Telcos also pay spectrum usage charges between 3% and 6% of the adjusted gross revenue (AGR) and licence fees at 8% of AGR, apart from a GST of 18%. COAI has also sought for reduction in these levies.

“The industry has accumulated unutilized input tax of about₹35,000 crore. This should be refunded immediately to enhance cash flows of the industry,” COAI said in the presentation.

The industry body has also batted for abolishing customs duty on the 4G/5G related network products such as soft switches and Voice over Internet Protocol (VoIP) equipment, etc, till such time as quality products at a competitive price are available in the country.―Livemint