Fewer Levies, Cheaper Spectrum May Help Untangle Telecom Mess

India’s telecom sector needs a fresh impetus, ranging from cutting the plethora of levies the sector is burdened with, to lowering the reserve price for spectrum in forthcoming auctions, according to experts.

“Rather than taxing the performance of the operators at a fixed rate in perpetuity, the government should look at a variable rate which would leave more investible surplus in the hands of the operators. This will cut borrowings, save interest costs, resulting in some sort of revenue-neutral rate which could be indexed to inflation with another 1% for exigencies,” said B.K. Syngal, senior principal at Delhi-based Dua Consulting.

The government has generated lower revenue from telecom in each of the past three years. It got a total of Rs. 12,100 crore as licence fee and spectrum charges in the year ended 31 March, a 13% decline from Rs. 13,700 crore it received in the previous year. It had collected Rs. 18,400 crore in FY17.

Telecom services currently attract a goods and services tax of 18%. Companies also pay a licence fee of 8% and spectrum user charges of 3-5%, besides paying corporate tax.

To tide over the immediate crisis, Syngal suggests waiving interest charges from the Rs. 92,000 crore in dues that the Supreme Court has directed telecom companies to pay in the adjusted gross revenue (AGR) case two weeks ago. Syngal said companies should be allowed to pay only the principal amount.

Jaideep Ghosh, partner at KPMG, suggests that telecom companies should be allowed to make the payments later.

Industry stakeholders are also worried about the impact the current crisis could have on the proposed auction of 5G spectrum. The companies are already burdened with massive debt. At the end of March 2019, Bharti Airtel, the ‘healthiest’ of the remaining legacy operators, had a net debt of Rs. 1.08 trillion. The company’s annualized FY20 revenue is seen 22.5% lower from 2015-16. Vodafone Idea is expected to fare worse, with revenue likely to decline by 43.4% during the same period.

“5G isn’t an extension of 4G. It’s a different ecosystem altogether. China has already raced ahead in 5G. The government could look at incentivizing users. This will help its Digital India goals as well as improve the health of the companies,” said Harsh Gupta, chief investment officer at Ashika Group, a financial services firm

Gupta suggests a monthly Rs. 30 ‘Digital Literacy Voucher’ for every mobile user for a year.

“You have JAM (Jan Dhan-Aadhar-Mobile) in place. Every mobile user could be given `30 as a monthly recharge with any telecom service provider. That will improve the ARPUs too,” he said. ARPUs in India are currently the lowest in the world, ranging between Rs. 110 and Rs. 130 per month for the companies, a clear reflection of the intense competition in the sector.

The industry has for long complained that governments, short of options to raise revenues to finance their social welfare schemes, have used it as a cash cow to make up for their deficits. Their grouse has been that governments haven’t looked at the sector in a holistic manner.

“Many of the problems would be solved if it looked at it holistically and not just as a telecom services provider. All telecom operators are now enablers of digital literacy in some way. They are content providers. What impacts telecom companies also impacts network element providers, logistics providers, tower companies and so on,” KPMG’s Ghosh said.

He is also not against the idea of deferring the spectrum auction but cautions it shouldn’t be for too long. Ghosh said the auction could be deferred by a few months but added a caveat: “China has moved ahead in 5G. It would not be prudent to delay it for too long,” he said.

Syngal favours redefining the concept of AGR which currently also includes dividend income, interest and revenues from sale of handsets bundled with services. “The current definition leaves a lot of grey area on what comprises telecom services. A revenue neutral mechanism will eliminate that ambiguity,” he said.―Livemint