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Government considering stress fund for distressed telcos

Pushed by all 3 telcos, Trai started a consultation process on the need to set a floor for tariffs.

Last Updated: Feb 22, 2020, 05.40 PM IST
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NEW DELHI: The government is considering the possibility of setting up a stress fund for the telecom sector that could lend to companies such as Vodafone Idea to help them meet AGR dues as part of a comprehensive relief package. Other measures being discussed include a deferment of licence fee and spectrum usage charge (SUC) payments.

“The committee set up under cabinet secretary Rajeev Gauba is considering whether banks could be asked to create this fund and is currently looking at other measures such as deferment of LF and SUC for a substantial period,” a senior government official told ET.

These points came up at recent meetings between top telco executives with government functionaries aimed at resolving the AGR payment crisis. With the Supreme Court ruling out any relief on the AGR issue so far, the focus has shifted to concessions on non-AGR issues.

“Stressed telcos, particularly Vodafone Idea, could borrow from this fund to pay their AGR dues and then repay their loans on easy terms over a period of time,” said a senior executive who participated in the discussions.

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The telecom industry has also underlined the critical need for a further rise in tariffs to strengthen the long-term health of the sector, the executive said.

“There is a need to provide both a short-term fix and a long-term fix for the sector. Supposing a short-term solution allows Vodafone Idea to survive for six months, what happens after that? There will be egg both on the face of the government and the company,” the executive said.

Raising Telcos’ ARPUs
Cash-strapped Vodafone Idea-—financially the weakest of India’s three operating private sector telcos—has so far paid only Rs 3,500 crore of the Rs 57,000 crore dues estimated by the Department of Telecommunications (DoT).

The telco’s own estimate of dues is about Rs 23,000 crore, of which Rs 7,000 crore is the principal. Given its cash position, which is barely enough to sustain the telco over the next two-three quarters, the carrier may not be able to pay even this in a short period of time, experts said. Vodafone Idea has said it will be forced to shut unless it gets relief on AGR dues.

On Wednesday, Vodafone Idea chairman Kumar Mangalam Birla and managing director Ravinder Takkar met telecom minister Ravi Shankar Prasad and telecom secretary Anshu Prakash. Birla and Bharti Airtel chairman Sunil Mittal also met finance minister Nirmala Sitharaman on the same day. A day later, Mittal met Prasad, and sought steps, including lowering of taxes, to ensure the sector remained viable.

Senior telecom ministry officials are of the view that Vodafone Idea’s bank guarantees should not be invoked for now because of the wider impact that its closure would have on jobs, the economy and the perception of India as an investment destination. However, other DoT officials have said that these need to be invoked since the company hasn’t paid up in full. Another official said the government is clear that the market needs to have three private sector companies to ensure competition.

Freeing up cash
Deferment of licence fee and spectrum usage charge payments—both of which are levied on the basis of AGR—will free up cash for telcos. This along with an increase in tariffs will help improve operating profit, executives said.

Telcos pay 8% of their AGR as licence fees, and around 4% of AGR as SUC. For FY19, the industry paid Rs 11,596 crore as licence fees and Rs 4,190 crore as SUC, as per regulatory data. For the first six months in FY20, government collected Rs 6,122 crore in licence fees and Rs 2,236 crore in SUC. These collections are expected to increase going forward, with the three telcos having raised tariffs in early December by up to 40%. This is expected to boost average revenue per user (ARPU), thus raising AGR, analysts said.

Mittal has previously said that ARPUs need to rise to Rs 200 initially and then to Rs 300 for the industry to be healthy. Airtel’s ARPU stood at Rs 135 at the end of December.

Pushed by all three telcos, the Telecom Regulatory Authority of India (Trai) started a consultation process on the need to set a floor for tariffs. Trai chairman RS Sharma met telecom minister Prasad on Thursday.

The Supreme Court ruled October 24 that AGR includes non-core items, leaving 15 telcos, including Vodafone Idea and Bharti Airtel, facing dues of more than Rs 1.64 lakh crore. The court also already rejected review petitions filed by the telcos, prompting them to file modification pleas, urging that they be allowed to negotiate modalities and payment timelines with the DoT. The Supreme Court hasn’t given any relief, with the next hearing due on March 17. It has threatened telcos with contempt of court and directed that all payments need to be made by that date.

Bharti Airtel is well placed to pay off its AGR dues, having raised $3 billion recently via a share sale and a bond issue. It has already paid Rs 10,000 crore of its dues, and will pay the balance shortly. Reliance Jio Infocomm, the only profitable telco in India, has already paid off its Rs 195 crore dues.
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