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IMG on telecom raises relevant concerns PDF Print E-mail
Monday, 23 October 2017 05:04
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Govt should note in no other countries are telcos fleeced in the manner they are in India

Though initial news coverage of the Inter-Ministerial Group (IMG) meetings on resolving the crisis in the telecom industry suggested its major recommendation was only to give embattled telcos more time to pay for their spectrum, as FE reported last week, it turns out the IMG made many far-reaching suggestions that addressed the problems that plague the industry. That the industry is in trouble because it owes banks and others Rs 4.6 lakh crore and has deferred payment liabilities to the government of Rs 3.1 lakh crore is well known; equally well known is that, with telcos having spent upwards of Rs 9 lakh crore on capex, the industry needs around Rs 140,000 crore of ebitda just to meet interest and amortisation costs versus the Rs 50,000 crore or so of industry ebitda today. And the reason for this, as this newspaper has pointed out before, is that government levies are rapacious in that they carry on with the old high-revenue-shares of the past when spectrum was given free even though spectrum is now auctioned today, and at sky-high prices. As a result, the share of revenue going to the government by way of recurring licence/spectrum charges and auction-bids rose from 11% in FY07 to 32.4% in FY17—if service taxes are included, the number rose from 23.2% to 47.4%.

If putting too little spectrum in the bid ensured prices shot through the roof during auctions, Trai tended to use the bid prices of the last auction as the reserve price of the next one. So, for instance, at Rs 554.4 crore per MHz, the reserve price for 1800MHz frequency band in Delhi in 2012 was quite similar to the 2010 bid-value for 3G spectrum (2100MHz)—so, though telcos bought the 1800MHz band to offer essentially voice calls, they ended up paying prices similar to what 3G/data spectrum cost. Which is why, the IMG has said “the Reserve price is a key factor and should be optimal … Reserve price should factor in the commercial availability of ecosystem in a particular frequency bands and the market competition … the IMG also recommends that the approach to fixing the reserve price of spectrum may be modified to make it more reasonable and in line with international best practices”. So, in the US, for instance, unless there is a major breach by a telco, once it wins the spectrum in a bid, this is simply renewed regularly without the need to either participate in fresh auctions—it is because Indian telcos were told their spectrum wouldn’t be automatically renewed that, primarily, auction bids have skyrocketed in various years—or to pay large revenue-share-based annual license fees.

And if the IMG did not make any recommendations on reducing the high annual license fee obligations that make little sense when the spectrum is auctioned, it is not as if it didn’t think this was a problem. The main reason, as its report says, is that “the IMG was informed that the Department (of Telecom) is in the process of formulating the New Telecom Policy. Therefore the IMG is of the view that the recommendations for structural changes in levies may be considered as part of this process”. Whether they will, and how fast this will happen, is now the question.

 

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