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Saturday, September 18, 2021

Viability of telecom sector: Govt likely to push for floor price

Officials in the Department of Telecommunications (DoT) said a floor price, which may even be set informally, will act like a support mechanism akin to the FRP (fair and remunerative price) for the sugarcane industry. “The floor price could be hiked by up to Rs 30 per user,” the official said.

Written by Sunny Verma , Aashish Aryan | New Delhi |
Updated: August 11, 2021 7:25:59 am
Viability of telecom sector: Govt likely to push for floor priceOfficials said the proposal to allow moratorium on spectrum payments and encashment of guarantees are, however, being opposed within sections of the government.

TO ENSURE sectoral viability, the government is likely to push for a floor price for services provided by telecom companies and also consider other options such as interest free moratorium on spectrum payments and encashment of bank guarantees.

Officials in the Department of Telecommunications (DoT) said a floor price, which may even be set informally, will act like a support mechanism akin to the FRP (fair and remunerative price) for the sugarcane industry. “The floor price could be hiked by up to Rs 30 per user,” the official said.

The DoT and the Finance Ministry are said to be in agreement on the floor price proposal, but they will need to bring the telecom regulator on board. The Telecom Regulatory Authority of India (Trai) has so far not entertained the idea of a floor price for telecom services.

Officials said the proposal to allow moratorium on spectrum payments and encashment of guarantees are, however, being opposed within sections of the government.

Spectrum usage charges for telecom companies are significant — in 2020-21, the DoT received Rs 5,205 crore and an additional Rs 2,500 crore following the Supreme Court judgement on Adjusted Gross Revenues. Bharti Airtel and Vodafone India (Vi) provide bank guarantees of about Rs 6,000 crore a year to the DoT.

The DoT has, in discussions with the Finance Ministry and other departments, proposed that loss-making Vi be allowed to convert its debt to equity, senior government officials said. Banks are said to be on board with the plan, they said.

“Even if we allow a moratorium on spectrum payments, or say the company’s (Vi’s) debt is converted into equity, the fact remains that its net worth is negative. The company needs liquid cash to run operations and survive. This is possible only when it generates money from users,” the official said.

Vi had an average revenue per user (ARPU) of Rs 107, which is significantly lower than Bharti Airtel’s Rs 145 and Reliance Jio Infocomm’s Rs 138 as of March 2021. The company has lost nearly 13 crore customers over the last three years. At the end of March 2021, Vi had roughly 27 crore customers. Reliance Jio and Bharti Airtel have 43.1 crore and 34.8 crore customers, respectively, as on May 31 this year.

Explained

Floor price, why and why not

A floor price essentially prevents companies from undercutting each other across various services. While the government may consider it as a means to ensure viability of the sector, the regulator sees it through a different lens — of whether such artificial props inhibit competition.

On the likelihood of converting Vi’s debt into equity, a DoT official said, “No options are off the table right now. There will not be much hit for the customers (even if Vi were to close down) as they can easily shift (to other networks). The government’s dues are at stake. We are looking at what best we can do to take care of all stakeholders,” a senior DoT official said.

The total dues owed by Vi just to the DoT are in excess of Rs 1.5 lakh crore — Rs 58,000 crore in adjusted gross revenues and Rs 96,000 crore in deferred spectrum payments. The company separately owes Rs 23,000 crore to banks and other lenders.

Several telecom analysts are of the view the government has no option but to “save the company if it wants to ever recover its dues”.

“They can not just let the company slip to insolvency because of the huge dues. Ideally, they should have been more vigilant about it, but with the Supreme Court judgment coming in 2019 when the sector’s health was already poor, not much could have been done,” an analyst said.

The discussions for relief to the telecom sector have gained pace after Kumar Mangalam Birla, former non-executive Chairman and Director of Vodafone Idea (Vi), wrote to the Central government in June offering to “hand over” his 27 per cent stake in the company to any public sector, government, or domestic financial entity or to any other firm that the government may think fit, to keep Vi going.

The June letter, however, was not the first time Birla had raised the request for a package from the government. In December 2019, he had, following the Supreme Court’s AGR judgment, said Vodafone Idea would have to “shut shop” if no relief was forthcoming from the government.

In a bid to remain competitive, telecom players have progressively undercut each other by slashing tariffs. The tariff wars intensified since 2016, after the entry of Reliance Jio Infocomm in to the telecom market, which first removed data charges and then turned voice calls free.

After a bruising three years, it was only in December 2019 that the major telecom players, Vi, Bharti Airtel and Reliance Jio, raised tariffs simultaneously without days of each other. There have, however, not been any major tariff hikes by the telcos since then.

For a while, Vi has been unsuccessfully trying to raise funds of up to Rs 25,000 crore or bring in a strategic partner. In his June 7 letter, Birla made a mention of the company’s efforts to raise funds and said all non-Chinese investors they had talked to so far had asked to be assured that the Indian government wanted to “have a three-player telecom market”.

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