1. Reliance Jio wants lower fees to help telecom sector to thrive, says incumbents to blame for fiscal stress

Reliance Jio wants lower fees to help telecom sector to thrive, says incumbents to blame for fiscal stress

Reliance Jio wants lower fees to help telecom sector to thrive, says incumbents to blame for fiscal stress Reliance Jio on Monday batted for lowering of revenue share, licence fee and spectrum usage charge as part of its proposal to free up funds for telecom operators to reinvest in newer technologies.

By: | New Delhi | Published: June 13, 2017 7:31 AM
Reliance Jio, Reliance, lower fees, telecom sector, fiscal stress The suggestion was made by Jio in its presentation before a government-appointed inter-ministerial group (IMG) that started meeting different sets of operators on Monday to assess the problems in the telecom sector. (Reuters)

Reliance Jio wants lower fees to help telecom sector to thrive, says incumbents to blame for fiscal stress Reliance Jio on Monday batted for lowering of revenue share, licence fee and spectrum usage charge as part of its proposal to free up funds for telecom operators to reinvest in newer technologies. The suggestion was made by Jio in its presentation before a government-appointed inter-ministerial group (IMG) that started meeting different sets of operators on Monday to assess the problems in the telecom sector. While the IMG, apart from Jio, also met officials of Reliance Communications and Aircel on Monday, meetings with the big three legacy operators — Bharti Airtel, Vodafone and Idea Cellular — are lined up for later this week.

Sources said Jio suggested that the licence fee should be reduced to 0.3% of the adjusted gross revenue of operators from the current 8%, and SUC for spectrum acquired in future auctions should be brought down to 1% from the current 3%. Currently, of the 8% licence fee, 5% goes to the universal service obligation fund, which Jio suggested should be scrapped and be made applicable to only those operators not reaching out to rural areas.

Jio has estimated that lowering such levies can generate Rs 20,000-25,000 crore additional earnings before interest, taxes, depreciation and amortisation (Ebitda) for the industry. Currently, the industry’s Ebitda stands at around Rs 50,000 crore. On this aspect, Jio may find wider support in the industry as the government’s policy has been of squeezing the sector by way of licence fee and SUC.

This was fine till 2010 when spectrum was given on a subscriber-linked basis, but after that the government moved to auctioning spectrum, which added spectrum acquisition cost for the companies while retaining the licence fee and SUC. The resulting trend is that while revenue growth is tapering, the combination of licence fee, SUC and instalments towards auction payments to the government each year as a percentage of their AGR is increasing. For instance, the industry’s AGR in FY2007 grew by around 30% and during the year its payout to government by way of licence fee and SUC stood at 11%. In FY16, the AGR growth was a meagre 6.8% while its payout to the government jumped to around 24%. The estimated AGR in FY17 will be in negative (-1.65%) while payout will increase to 32%.

However, there are parts of Jio’s presentation with which the incumbents won’t agree. For instance, Jio has said that the financial stress being faced by the industry is not due to its entry as a new operator offering reduced tariffs. It instead blamed the incumbent operators for leveraged balanced sheets due to excessive dependence on debt and not investing in equity. Jio’s suggestion was that incumbent operators should sell stakes to infuse equity and invest in newer technologies.

The analysis and recommendations on the industry’s financial health are bound to be challenged by the incumbents. Another point highlighted by Jio that is bound to be challenged by the incumbents is that the government should not have allowed the option of deferred payment for spectrum over a period of 10 years. It said that without this option the operators would have bid more rationally and not blamed the government for high spectrum prices. The company said that 70-80% of total debt is in the form of deferred payments. The incumbents want the period of deferred payment to be increased to 20 years from the current 10.

The telecom industry has bought spectrum worth Rs 3.45 lakh crore since 2010. It has paid around Rs 1.90 lakh crore upfront and has opted to pay the balance through deferred payment, which together with interest adds up to Rs 3.08 lakh crore over the next 11 years up to 2028-29. It owes Rs 4.60 lakh crore to various financial institutions and banks.

  1. A
    Apte
    Jun 13, 2017 at 8:59 am
    1. After entry of Reliance Jio in the market, other telecom service companies have woken up to fact that their customers can dictate terms to them. Customers can no longer be taken for granted. Roaming charges have been abolished for good. 2. Why are these companies crying foul? Why do they realise that when going was good they just did not bother about customers who had to accept what they offered? 3. It is worth noting here that the biggest telecom services provider in India, AIRTEL, made huge profits initially. Instead of utilizing the profits to offer better quality service to existing customers in India, it decided to invest money in telecom business in South Africa. It was a huge gamble which just did not pay off. AIRTEL has lost heavily in its South African venture. BSNL and MTNL, two public sector telecom companies, are incurring losses and need government support. Let us see how the Union Telecom ministry deals with current and future challenges in the telecom sector.
    Reply

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