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Telecom policy useless if license fees not cut PDF Print E-mail
Friday, 28 September 2018 05:57
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Given govt plan envisages a 2.5-fold hike in investment even as most telcos are bleeding, not clear how it will work

 

As part of its new National Digital Communications Policy—with the policy renamed, the Telecom Commission is to be re-designated the “Digital Communications Commission”—the government is looking at providing broadband connectivity to everyone at a speed of 50Mbps, a 1Gbps connectivity to each gram panchayat, expanding the IoT ecosystem to 5 billion devices and attracting $100 billion of investment by 2022. By all accounts, that is an ambitious policy since, right now, average broadband speeds in the country are 5-6 Mbps and, more importantly, annual investments by mobile phone companies are in the region of around $10 billion annually—that is, the government is looking at a 2.5-fold hike in investments over the next four years.

And it expects this at a time when the industry is, mostly, in deep trouble. India’s top telecom company, Bharti Airtel, features in Credit Suisse’s list of stressed companies, with an interest cover (Ebit-to-interest) of less than one—with an interest repayment of Rs 2,550 crore in Q1FY19 and an Ebit of Rs 1,581 crore, Airtel’s interest cover is a mere 0.6. Idea had a negative Ebit in Q1, so its interest cover is much worse. Indeed, all telecom debt in the country is owed by companies that have an interest cover of less than one; this ratio was 55% just a year ago and 35% two years ago in Q1FY17.

Nor is there much likelihood of this improving in the immediate future. After rising from Rs 131,602 crore in 2011 to Rs 198,206 crore in 2016, the sector’s gross revenues are estimated at Rs 142,789 crore this year, and, as a result of this, revenues accruing to the government have fallen by around 37% in just the last two years, to a likely Rs 36,291 crore this year as compared to Rs 57,673 crore in 2016; this was partly due to the fact that, with telcos so stressed, there were no auctions in 2017 and 2018.

Apart from what the precarious finances mean for the repayment of bank loans, even more worrying is the ability of telcos to make good their spectrum payment obligations from earlier auctions. Between Vodafone and Idea, for instance, Rs 10,579 crore has to be paid to the government each year from now to 2030; as compared to this, their combined Ebitda, which also needs to be used for other payments, was Rs 13,803 crore in FY18, down from Rs 22,017 crore the year before that.

While talking of 5G, IoT, M2M and other technologies, however, the policy has still not cut the very high levels of government levies—as compared to just an 11% VAT rate in China, India’s levies, including the 18% GST, range from 29-32%. Nor, for all the grandiose plans, has there been any visible progress in cutting high spectrum prices. While 100% of spectrum put on auction in 2015 remained unsold due to high spectrum prices, this was as high as 59% in 2016 and no auctions could take place in 2017 or 2018 due to telcos being cash-strapped; and even now, Trai has put a reserve price of Rs  492 crore per MHz of 5G spectrum despite the fact that, just last month, this was auctioned for Rs 130 crore in South Korea. Apart from these issues, little progress has been made in providing right-of-way for connecting telecom towers with optic fibre or in coming up with a sensible policy for the critical E and V bands. Just re-christening the telecom policy and calling it a ‘national digital communications policy’ isn’t going to do the trick; getting telecom back on track requires a lot more work.

 

 

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