Operators to file review petition in apex court shortly; govt wants more tariff hike before deciding on licence fee and SUC cut
The government will wait for the outcome of the limited review petition scheduled to be filed by the telecom operators in the Supreme Court shortly on the issue of payment of licence fee and spectrum usage charge based on the definition of adjusted gross revenue, to decide its next course of action on the matter.
Official sources said that if the operators get any relief from the apex court in terms of more time to pay up their dues, then the government is likely to come out with a deferred payment installment scheme, much like the one related to spectrum payment. The total dues relating to AGR totals Rs 1.47 lakh crore according to figures tabled by the department of telecommunications in the Parliament on Wednesday. Of this, the licence fee stands at Rs 92,642 crore and SUC at Rs 55,054 crore. The bulk of the dues are payable by Vodafone Idea at Rs 53,039 crore. Bharti Airtel needs to pay Rs 35,586 crore.
Sources said that the government also wants the operators to hike tariffs at intervals of six months or so for some time to better their realisation. So far, it has succeeded since all three operators have stated that beginning December they will increase tariffs. The government expects them to go for another round of hike after some six months.
As reported by FE earlier, the Telecom Regulatory Authority of India (Trai) is also likely to stick to the current termination charge of 6 paise per minute for the next two years, beginning January 2020. Sources said that the Trai is unlikely to come out with a separate consultation paper on any floor price for tariffs but by keeping the current termination rate intact may in a way signal that this is a kind of floor price.
If the tariff hikes, relief from courts in the AGR matter, and the fixation of termination rates at the current rate takes place, the government may once again take a view whether other relief measures like a cut in licence fee and spectrum usage charge should be offered to the industry or not.
“The view within the government is that the operators should first put their own house in order and stop tariff war, etc, which is damaging the industry. If the industry squabble ends, the government is willing to offer more help. It has already taken the first step by offering a two-year moratorium to the operators from paying their spectrum installments,” official sources said.
Currently, data rates for consumers at an average of Rs 8 per GB is the lowest in the world.
It used to be Rs 50 per GB before the launch of Reliance Jio in September 2016. The average revenue per user per month has declined from `174 in FY15 to Rs 113 in FY19. A subscriber on an average uses 10 GB of data and 700 minutes of mobile talk time per month. This means that there’s enough scope to raise tariffs in a manner that neither the consumer feels the pinch nor the industry bleeds.
“Our analysis shows an average realisation per user increase of 10% by Bharti and Vodafone Idea will result in 10% wireless revenue growth and 20% wireless Ebitda growth based on Q2FY20 financials,” Elara Capital had said in a note on Tuesday.
On Wednesday, the Cabinet cleared a package that offered some cash flow relief for the operators. For instance, operators need not pay their deferred spectrum dues till 2023 – they have paid 2019 dues, the bank guarantee they have already given will be used for the 2020 dues and no payments need be made over the next two years.
Thus the cash flow relief for Bharti Airtel will be Rs 11,476 crore, for Vodafone Idea Rs 23,920 crore and Rs 6,670 crore for Jio. The operators will have to pay interest costs of the amounts that have been deferred. “We await clarity on whether this is the extent of relief that the government is willing to offer or whether there could be more measures forthcoming,” Citi Research Equities said in its report on Thursday. It said that while the deferment of spectrum auction payments for two years, that is 2020-21 and 2021-22, will offer some much-needed cash flow relief, particularly to Vodafone Idea, that “by itself may not be sufficient to address leverage concerns of the companies”.
Credit Suisse on its part said that while deferment of spectrum auction payment is in line with its expectations, “no decision on licence fees reduction is clearly negative”. “On AGR, we believe the telcos are likely to approach Supreme Court for relief,” it said.
Goldman Sachs Equity Research estimated that with the two-year moratorium on such payments (in FY21 and FY22), Bharti Airtel and Vodafone Idea can potentially save $2 billion (about Rs 14,200 crore) and $3.3 billion (about Rs 23,400 crore), respectively, over this period, amounting to 41% and 52% of their respective AGR-related liability.
“While this moratorium helps near-term liquidity for telcos, especially VIL (Vodafone Idea), we do not see this improving balance sheet leverage of the company, which stood at 20x (net-debt-to-Ebitda) as of September 2019. For Bharti, this moratorium will help better meet any potential AGR-related liability, in our view,” the report said.