Reluctance of banks to write off telecom NPAs has delayed consolidation

The reluctance of banks to write off NPAs (non-performing assets) of financially unsustainable telecom operators is one of the reasons behind the slow consolidation in the industry, said Vodafone India Managing Director and CEO Marten Pieters.

According to Mr. Pieters, “maximum competition” in the domestic telecom industry is possible even if the market is serviced by only four-to-six operators.

“There are some very specific issues here. Why are companies [telecom operators] able to continue with $4-7 billion dollars in debt on their balance sheets? This is because banks in India are very reluctant to write off NPAs,” Mr. Pieters said, while addressing a roundtable at The Hindu’s office on Wednesday.

In the U.S, Mr Pieters pointed out, “they [those companies] would have already gone broke years ago.”

“Does this sound familiar? That’s the problem. The problem is that they [the banks] are kicking the can down the road through restructuring, refinancing and re-whatever,” he added.

The Vodafone India boss also pointed out that the generally prevailing view that “3G had not done well in India” was false.

“One of the things I very often hear in the media world is that 3G has not been a success. But that is not true at all… 3G is a fantastic success! Our 3G usage per customer is much higher than it is in Europe already,” he said.

Granted, Mr. Pieters said, “3G in Jharkhand is not a big success today. But 3G in the places where it matters like Chennai, Mumbai and Delhi… it is a major success. [It is] actually far bigger than we have seen in other areas in the world.” When asked what would be his suggestion for the new Government that will be formed after elections, he pointed out that it needed to bring down the cost for operators.

“The cost for the operator is very high, not only due to the purchase of spectrum, but the fact that we also have to pay 5 per cent of our revenues on an on-going basis for the spectrum,” he said.

“This is really unusual… you [either] pay ongoing revenue share or you pay for the spectrum. But the Indian government, in its wisdom, has decided that we should do both! Then you have the USO fund on top of that. This is why enormous amounts go to the Government. The cost of this industry needs to go down, so that return on capital can go up,” he added.

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