Government of India on Wednesday brought out two measures that would take a whole lot of burden off from the telcos’ shoulders. One, it allowed the operators more time to pay for the spectrum they won in auctions, and two, the overall spectrum holding limit in a telecom circle has been increased.
These two measures would help the industry immensely – one in short run and the other in long run – just like allowing someone a personal and a home loan respectively.
The Personal Loan Part : Deferred Payment Tenure
The cabinet headed by Prime minister Narendra Modi, with the recommendation from TRAI and Telecom Commission, has extended the payment tenure for the auctioned spectrum. It has been extended from current 10 years to 16 years, so the operators now got 16 installments to make the payment. It helps in boosting the immediate cash flow for an industry that has been reeling with close to Rs 8 lakh crore debt.
This move became all the more significant because of its timings. The debt-ridden telcos are struggling for survival post the Reliance Jio entry to the market. Country’s largest telco Bharti Airtel has been showing a consistent decrease in its profit for multiple quarters now. Idea Cellular, the third largest telco, two quarters back, had posted its first-ever loss. Vodafone, too, is not in a very dissimilar position. Small telcos like TTSL, RCom, Aircel and MTS etc, have already left the ground.
However, just like personal loans and an increased number of EMIs, you tend to pay more. The telcos too would have to cough up more during the whole process. But, that should be OKAY as long as it offers them the immediate relief from current cash crunch and, some liberty to use the cash-in-hand in some other luxuries, say expansion or network improvement.
“By giving one-time opportunity to opt for higher number of installment (max. 16 installments) apart from currently permitted 10 installments. The increased installment is based upon the principle that the Net Present Value (NPV) of the Payment Due is protected as per respective notice inviting application for auction of spectrum from 2012. The total amount received will be higher by Rs. 74446.01 crore till 2034-35,” the government said.
The Home Loan Part : Increasing Spectrum Holding Limit
In the second big measure, the home loan part, the cabinet allowed operators to have more spectrum in a circle as a result of merger and acquisitions. The spectrum holding cap in a telecom circle has been increased to 35% from current 25%. This would boost the M&A activities as the current government policy does not allow a merged entity to hold more than 25% of the total spectrum in that circle. This, now, has been increased to 35%.
“Revising the limit for the spectrum cap holding will facilitate consolidation of telecom licensees and may encourage the participation in the future auction,” the government said. However, it added that, the revised spectrum caps limits ‘may be revisited after Final Acts of World Radiocommunication Conference (WRC) 2019.’
The overall holding cap of intra-band spectrum has also been removed. Instead, the Cabinet has put a cap of 50% on combined holding of airwaves under sub 1GHz bands like 700 MHz, 800 MHz and 900 MHz. For airwaves of more than 1 GHz bands, there is no capping limit.
The operators and industry watchers, however, offered mixed reaction to the government’s relief package to the telcos.
“Cabinet’s approval of recommendations is a huge positive step for the telecom industry. Government has considered the importance of telecom and the sustainability of the Industry. The increase in spectrum holding limit to 35% will be helpful considering the ongoing consolidation in the industry.
While the increase in repayment term from 12 to 16 years will reduce the immediate cash outflows to some extent, the fundamental issue of INR 7 lakh crore debt, race to the bottom on pricing of mobile services, significant annual servicing costs, declining revenues – need to be addressed comprehensively to make the sector viable,” said Hemant Joshi, Partner, Deloitte India