The inter-ministerial group (IMG) which was set up to assess stress in the telecom industry has come up with recommendations to address financial stress in the telecom industry. However, the IMG did not meet all the demands raised by the telecom operators in India.

Telecom operators including Bharti Airtel, Idea Cellular, Vodafone, Reliance Communications, among others, were looking for financial support to come out of the current market situation prompted by the free services offered by Reliance Jio.

IMG recommendations

# Extension of deferred payment period for spectrum acquisition to 16 years from the existing 10 years period

# Change in the method for interest calculation to marginal cost of fund based lending rate

Since the IMG has not recommended any significant change with respect to cut in license fee and spectrum levy, the decision will be a major disappointment for Indian telecom operators.

The telecom industry was expecting a cut in Universal Service Obligation Fund (USOF) levy as the industry is of the view that they have provided connectivity to most parts of the country. Currently, of the 8 percent license fee, the USOF comprises of 5 percent.

Telecom operators’ demands

# Cut in license fee to 5 percent from the existing rate of 8 percent

# Flat 1 percent spectrum levy from 3-6 percent

# The deferred payment liability of spectrum be aligned to the life of spectrum i.e. 20 years with a moratorium of 5 years and repayment of 15 years
The above chart prepared by TRAI indicates about the decline of ARPU of Indian telecom operators between March 2016 and March 2017.

India government formed IMG to examine systemic issues affecting viability and repayment capacity in telecom sector and furnish recommendations for resolution of stressed assets at the earliest. IMG also considered policy reforms and strategic interventions for the mobile industry in India.

IMG will submit its recommendations before the Telecom Commission. The Telecom Commission is expected to meet on 8 September.

According to CARE Ratings’ Chief Economist Madan Sabnavis and Research Analyst Bhagyashree C. Bhati, the extension of deferred payment period for spectrum acquisition to 16 years from the existing 10 years period will aid the companies to improve their cash flows as the duration for which the payment is to be made will stand increased.

As there are no significant recommendations with respect to cut in license fee and spectrum levy, the government revenue will remain unaffected. This is because the telecom companies have to pay license fee and spectrum usage charges (SUCs) to the government.

As per the current norms, the telecom companies pay 8 percent of the adjusted gross revenues (AGR) as license fee and 3-6 percent of the adjusted gross revenues as spectrum usage charges.

The IMG recommendations will provide relief to the telecom players in the long term. However, the IMG did not consider one of the most concerned issues of reduction in license fee and spectrum levy of telecom industry that could have provided some relief to the telecoms.