Ministers’ Panel Starts Hearing Case For Bailing Out Debt-laden Telecom Firms  

An inter-ministerial panel led by a senior official in the telecom ministry started its hearings on a possible bailout of debt-laden telecom companies even as most telecom firms increased the pitch of their demand for one.

India’s telcos are loaded with debt—around Rs 4.85 trillion at the end of December 2016 — and face the burden of payments due to the government for spectrum (close to Rs 3 trillion). They also face intense competition, with the average revenue per user (ARPU) of most falling sharply since the launch of Reliance Jio Infocomm Ltd in September 2016.

The telcos want major cuts in various statutory payments such as the spectrum user charge and the interconnect charge and a liberal payment schedule, allowing them to pay for spectrum over 20 years instead of 10, according to a telecom industry executive who asked not to be identified.

State-owned banks, worried that their already stressed balance sheets—stressed assets in the Indian banking system amount to around Rs9.5 trillion—raised the issue in a meeting with finance minister Arun Jaitley on Monday, said a government official who spoke on condition of anonymity. He added that the finance ministry is “waiting for the telecom ministry to come back with proposals after consultations with the industry”.

Not all telcos want a bailout. On Monday, in its discussions, Reliance Jio is believed to have told the inter-ministerial panel that its rivals should invest more equity. Jio and other telcos have fought a bruising battle since September. Offering its service for free for almost six months up to 31 March, and for a small fee thereafter, Jio has acquired over 100 million subscribers. Its launch and pricing strategy has engendered a clutch of legal challenges by rivals, and also provided the trigger for the largest merger in the space—of Idea Cellular Ltd and Vodafone India Ltd to create India’s largest telco.

A Jio spokesperson did not respond to an email seeking comment.

The total revenue of Indian telcos declined for the first time since 2008-09 in the year ended 31 March 2017, thanks to Jio, according to brokerage CLSA. It fell to Rs 1.88 trillion from Rs 1.93 trillion the previous year.

The inter-ministerial panel is expected to meet representatives of banks on Wednesday, other companies later, and telecom minister Manoj Sinha is scheduled to meet the chief executives of telcos on 25 June, added the executive cited in the first instance.

In response to a query from Mint on the incentives sought by the telecom sector, the Cellular Operators Association of India (COAI) said that there was a need to rationalise the regulatory cost which, if not addressed, can hurt the telecom industry, the economy and revenue to the exchequer. COAI’s recommendations include reduction of the spectrum usage charges, licence fee, a five-year moratorium on deferred spectrum payment against two years at present and a 12 per cent goods and services tax rate against the proposed 18 per cent.

The executive cited explained the math of the telcos’ woes. In 2017-18, telcos will have to pay Rs 53,000 crore as interest and Rs 28,000 crore to the government for spectrum already bought. The industry’s aggregate earnings before interest, tax, depreciation and amortization (Ebitda) will come to only about Rs 50,000 crore, this person added.

Telecom companies paid Rs 78,000 crore to the telecom department in 2016-17 alone by way of recurring licence fees and other charges, according to the Union budget of 2017-18.

This article was first published in Mint, and has been republished here with permission.