Centre's moratorium on spectrum dues may not help telcos

Industry for rationalisation of taxes, levies; analysts say move to provide major relief to Vodafone Idea

November 21, 2019 10:30 pm | Updated November 22, 2019 12:20 pm IST - NEW DELHI

Distress call: The telecom industry, under severe financial stress, has been demanding a relief package.

Distress call: The telecom industry, under severe financial stress, has been demanding a relief package.

While the Union Cabinet’s nod for a two-year moratorium to telecom companies on pending spectrum dues is a welcome relief, analysts and the industry have said that the measures are below expectations and more needs to be done to help the debt-ridden sector.

The two-year moratorium on pending spectrum payments will help the companies avoid an immediate outflow of over ₹42,000 crore.

Industry body Cellular Operators’ Association of India (COAI) said the move will certainly provide some immediate cash flow relief to the industry. However, the high level of levies and taxes continues to be a challenge for the sector.

Pointing out that the telcos pay up to 30% of their revenues to the government by way of various levies and taxes which is an “enormous burden,” Rajan S Mathews, Director General, COAI, said, “We have been requesting the government that these levies and taxes be rationalised and the same is also one of the important goals of NDCP (National Digital Communications Policy ) .

However, these aspects of the NDCP are yet to be operationalised and we are engaging with the government on the same.”

Analysts noted that while the decision is cash-flow positive for all the telcos, it provides much-needed relief to Vodafone Idea.

According to a Telecom Ministry official, the move will help Vodafone Idea prevent an outgo of ₹23,920 crore over the next two years. The amount for Bharti Airtel and Reliance Jio stand at ₹11,746 crore and ₹6,670 crore respectively.

More relief may come

Jefferies India, in a report, said, “The measures were slightly lower than our expectations. We expect further relief measures from the government as even with the price hike in December, Vodafone Idea will need support, especially around AGR (Adjusted Gross Revenue) dues payment.”

Credit Suisse, in its report on Thursday, said that while deferment of spectrum auction payment is in line with its expectations, “no decision on licence fee reduction is clearly negative.” It added that on AGR, it believes that the telcos may approach the Supreme Court for relief.

As per Goldman Sachs Equity Research, with the moratorium, Bharti Airtel and Vodafone Idea can potentially save $2 billion and $3.3 billion, respectively, over this period, amounting to 41% and 52% of their respective AGR-related liability.

Citi Research pointed out that while the moratorium on spectrum payments, combined with the recent announcement by all three companies to raise prices should help Vodafone Idea tide over its delicate cash flow situation, uncertainty prevails on two other key relief measures sought by the companies — reduction in recurring levies and reduction in AGR-related liabilities.

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