According to two senior government officials, a meeting at the highest levels of the government is scheduled for this week to discuss scaling down the licence fees which, industry experts say, will save the three telcos a combined Rs 4,000-5,000 crore annually.
Industry experts said that while a licence fee cut will give some relief, it won’t be enough to stave off the balance sheet dangers of the likes of
These two telcos face statutory dues of over Rs 53,000 crore and Rs 35,500 crore, respectively, due to a Supreme Court order widening the definition of adjusted gross revenue (AGR).
“The government cannot do anything about the AGR dues, which has been decided by the Supreme Court. From the initial suggestions of relief measures, a licence fee cut will be taken up now following the two-year spectrum moratorium already announced,” said a senior official, who did not want to be named.
Another person aware of the developments said that once a decision is taken, it will be sent to the Cabinet to be ratified.
The Committee of Secretaries (CoS), which was set up to suggest measures to improve the health of the sector, had last month recommended a reduction in the licence fee paid by telecom companies and allowing a two-year moratorium on spectrum payments. While the moratorium was approved by the Cabinet, giving a Rs42,000 crore cash flow relief to the three private telcos, the licence fee reduction issue is being taken up now.
Telcos annually pay 8% of their adjusted gross revenue (AGR) as licence fees. The industry has been long calling for a reduction in that fee, besides also in the spectrum usage charge (SUC), which is paid at 3-5% of AGR.
“So, the Universal Service Obligation Fund (USOF) component of licence fee could be cut to 3% or 4%, from 5%, and the pure licence fee component to 2% from 3%,” said one of the officials. USOF comprises 5% of the 8% of AGR that telcos pay as licence fees annually.
Analysts said if this licence fee gets reduced to 5%, Bharti Airtel will save around Rs 2,000 crore, Jio some Rs1,500 crore and Vodafone Idea around Rs 800 crore in the next fiscal year starting April 2020.
“If this (licence fee cut) happens, then this would be a step in the right direction since Indian licence holders are on the higher side of regulatory charges. However, it will not be enough to address the near-term balance sheet concerns pertaining to the AGR issue,” said Rajiv Sharma, head of research at SBICap Securities.
The government has said it won’t be able to give any relief to telcos on the AGR dues unless the court directs it to. Airtel and Vodafone Idea have both filed limited review petitions, but they haven’t been heard as yet.
Prashant Singhal, global technology, media and telecommunications (emerging markets) leader at EY, said that AGR is a much bigger concern and industry is “hopeful that the top court looks into the review petition.”
But any cut in levies — coupled with the two-year moratorium on spectrum payments, recent price hikes by the telcos and any move by the regulator to set a floor for tariffs — will add to the outlook towards the sector turning positive, say analysts.
And this will help attract investors for telcos such as Bharti Airtel, who has announced a $3 billion fundraising programme via equity and debt. Vodafone Idea in the near future too will need to raise funds, not just for AGR but also for capex to take on Airtel and Jio in the market.
The sector has been long calling for levies such as the licence fees and SUC to be cut, saying the Indian telecom industry is among the highest taxed in the world, with Rs30 of every Rs100 earned going to the government.
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13 Comments on this Story
Zabar Dust439 days ago
Retail borrowers never get any lifeline, why should corporates ??
Daily Watch440 days ago
This will help little bit
Srinivasan G Kailasam440 days ago
You cannot have auction of spectrum and revenue sharing at the same time.Vajapayee government went for only revenue sharing.They were more far sighted.