Telecom Firms May Continue To Bleed As Missed Revenue Targets Leave No Room For Cut In Levies

Any hopes that the telecom industry had of reduction in levies such as license fee, spectrum usage charges or some form of further moratorium on the payment of deferred spectrum charges seem dashed now.

Going by the Interim Budget, it is quite clear that the department of telecommunications (DoT) is not going to bring about any reduction in levies as promised in the new telecom policy document.

The numbers on telecom earnings show that with declining tariffs in the industry, the sector’s revenues are falling and with that the government’s revenue as well. As a result, there’s hardly any room for the government to reduce levies.

Revenues through telecom earnings, which include license fee, SUC and installments of deferred spectrum payment, will fetch the government Rs39,245 crore in FY19 against the targeted Rs48,661.41 crore. This means there will be a shortfall of Rs9,416.42 crore.

The Budget estimates for FY20 have been fixed at Rs41,519.76 crore — a negligible growth over the final
estimates of FY19.

In the final run-up, even this target is likely to be missed, considering that there’s no scope for tariffs to be increased and the number of players in the sector also reduced.

Till 2016, a big component of telecom earnings would be revenue through spectrum auctions. Though the companies were given the flexibility to pay through installments spread over 16 years, an upfront payment of the bid amount (either 25% or 33% depending upon the bands opted for) was made. After 2016, there hasn’t been any auction since the industry is not in a shape to spend any more money.

Further, in September 2016, Reliance Jio entered the market and unleashed a tariff war which also meant lesser revenues for the government as license fee and SUC are a percentage of the earnings of the companies.

Just for perspective, the adjusted gross revenue of the telecos declined by 35.2 percent between FY15 and FY18. This led to a decline in government revenues to the tune of 17.55 percent over the same period.

Therefore, the government now hardly has any room to cut any levy on telecom or rollover the deferred spectrum installments which the industry needs to pay every year.―The Financial Express