Billionaire Kumar Mangalam Birla, head of India’s biggest telecom company, has sent an SOS to the government for deferring statutory payments in a sector that is not generating enough cash to even service loans, a source said. Hit by intense competition and regulatory uncertainty, most telecom companies are in a turmoil as they attempt to retain market by matching dirt-cheap tariffs at the cost of eroding profits and taking on debt.
Birla, who heads Vodafone-Idea – the new entity that emerged from merger of India operations of UK’s Vodafone plc and Idea Cellular, raised the issue of stress in the telecom sector in a meeting with Telecom Minister Manoj Sinha and his department’s top bureaucrat, Aruna Sundararajan, recently.
A senior official with the knowledge of the matter said that Birla cited severe liquidity crunch in the market to underscore the need for a relief package from the government.
Among his key demands was further deferring of the payment schedule for spectrum, which the government leases out to telecom operators to allow calls and data to carry from one mobile phone to another.
The next date for annual spectrum fee payment is by fiscal end and Vodafone-Idea reportedly have to pay over Rs 900 crore to the government. Industry sources said that the total outgo from all operators on this account would be close to Rs 20,000 crore.
Meanwhile, the official said that Birla also sought other concessions but did elaborate.
Vodafone Idea Ltd declined to comment on an e-mail query sent to the company on the issue.
Over the past few years, India’s telecom market had become cut-throat where nearly a dozen players jostled for market share, pummelling the call rates to amongst the lowest in the world. Competition has only intensified since 2016, when Reliance Jio Infocomm, owned by India’s richest man Mukesh Ambani, stormed into the market and offered free calls and dirt cheap data. This triggered consolidation in the industry.
The official said discussions between Birla and government officials were informal and the Department of Telecom will take a view on the issue once a formal representation is made.
The Vodafone Idea Chief is said to have expressed concern over Rs 30,000 crore that is locked up on account of GST payment under ‘reverse charge mechanism’.
Under the GST ‘reverse charge mechanism’ provision, registered dealers are required to make tax payments in case he procures goods from unregistered businesses.
The provision was applicable from July 1, 2017 till October 12, 2017. With companies facing trouble in implementing the provision, the GST Council has decided to keep RCM in abeyance till September 30, 2019.
Among other concerns highlighted by Birla was the high upfront payment for radiowaves, the official said adding he has sought that period of payment for spectrum purchases be increased to 18 years from the current 16 years, and favoured a moratorium. High levies in the telecom sector and the recent hike in import duty also figured in the talks, said the official but did not elaborate.
The results of the bruising tariff war on the financial health of the sector is visible.
Earlier this month, at its maiden earnings announcement as a joint entity, Vodafone Idea Ltd reported a consolidated loss of Rs 4,973 crore for the September quarter and announced a fund infusion of Rs 25,000 crore to help it take on brutal competition.
Bharti Airtel too has reported a drop in consolidated net profit for the 10th straight quarter as losses on mainstay India business widened due to pricing pressure from aggressive competition. Overall, its consolidated net profit of Rs 118.8 crore in July-September represented a drop of about 65 per cent from Rs 343 crore in the year ago period.
Airtel’s loss from India operations (before exceptional items) mounted to Rs 1,646.4 crore in the second quarter of the current fiscal compared to about Rs 940 crore in the preceding three-month period.
In fact, Moody’s Investors Service recently placed Bharti Airtel’s rating on review for downgrade, following low levels of profitability and expectation of weak cash flow. – zeebiz