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Govt takes note of ailing telcos, plans to reduce financial stress

The country’s telecom sector is going through a period of extreme financial distress due to mounting debts after the Supreme Court’s recent verdict against three telcos in the adjusted gross revenue (AGR) case.

Some telecom firms such as Bharti Airtel and Vodafone Idea (VI) are under pressure at the moment as they have to repay a large amount to the government as part of pending AGR dues.

The two major telcos along with Tata Teleservices have to clear their dues by March 31, 2031, in 10 instalments.

Of all the telecom firms, VI faces the toughest hurdle as it has been asked to clear the biggest share of AGR dues.

Simply put, the company is facing an existential crisis at the moment due to a lack of funds as it is struggling to generate enough cash from the business.

Deutsche Bank recently said in a report that the government should convert VI’s debt into equity to avoid a duopoly in the telecom sector.

The bank said it is the only ideal solution after the top court dismissed the telecom firm’s application for re-computation of AGR dues.

“The vast majority of Vi’s debt is spectrum and AGR obligations, and the company will need to take on 5G spectrum at some point too. Private investors are extremely unlikely to save the company, given successive governments seeing telecom capital as something to target,” Deutsche Bank research analyst Peter Milliken said in his report.

It may be noted that VI had a total debt of roughly Rs 1.8 lakh crore as of March 31, 2021 — Rs 96,270 crore worth deferred spectrum obligation, AGR dues of over Rs 60,000 crore and bank debt of Rs 23,080 crore.

Not just VI but other telcos are also under financial pressure due to the pandemic.

Bharti Airtel CEO Sunil Mittal has said earlier this month that there is “tremendous stress in the telecom sector” and tariffs need to go up soon.

He added that Airtel will not hesitate to raise prices, but won’t do it unilaterally.

The company on Wednesday scrapped the entry-level prepaid recharge of Rs 49.

“To say telecom industry is in a bit of trouble is actually an understatement. It is in a tremendous amount of stress. I hope the government, the authorities, and the telecom department focus on this issue and ensure India’s digital dream remains intact through the provision of at least three operators,” Mittal said.

-What Govt plans to do-
The government has taken note of the financial stress on the entire telecom sector and is considering several long term measures, reported The Economic Times.

Some of the possibilities that are being discussed including prospectively redefining AGR to exclude ‘non-telecom items’ and allowing telcos to surrender unused spectrum for a small penalty.

The same was confirmed by senior government officials who spoke to the publication.

One of the officials quoted in the report suggested that the government is exploring ways to improve the financial health of the sector and not just one company.

However, the measures that are being discussed or looked at may take a while to get approval.

The officials told ET that measures would require extensive consultation with the finance ministry due to the revenue implications, including reduction of the annual licence fee (LF) and spectrum usage charge (SUC).

-Redefining AGR-
The most important of all the measures that are being looked at is redefining AGR to exclude non-telecom items.

While the government won the longstanding battle against telcos in Supreme Court, the matter still remains a big burden for the entire telecom sector.

In September 2019, the top court backed the government and widened the deification of AGR to include non-telecom items.

The judgement was challenged several times, but the outcome has remained the same.

However, the decision seems to have severely impacted India’s legacy telecom including Bharti Airtel and Vodafone Idea.

The two entities are facing combined dues of Rs 1.02 lakh crore in AGR-related licence fees and SUC dues.

It may be noted that LF and SUC are determined and paid on the basis of AGR.

If the senior officials quoted in the ET report are to be believed, the government is exploring the possibility of coming up with a fresh definition of AGR for excluding all non-telecom revenue.

-Provision to surrender unused spectrum-
Another reform that is being looked at by the government is a provision to allow telecom firms to surrender unused spectrum along with a small penalty.

It may be noted that telcos can only trade or share airwaves with each other as per the current regulation.

However, the officials feel that telecom will benefit if they are able to return unused spectrum to the government, albeit with a small penalty.

Telcos won’t mind the penalty as they incur deeper losses when they have to pay instalments — for the spectrum they do not even use — for years.

Older telcos that have been operating for years have requested the government several times to change key rules to help the entire sector.

However, little action has been taken over the years to pull the stressed sector out of trouble. India Today

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