How IMG’s Decisions Can Change The Fortunes Of Indian Telecom Industry

The inter-ministerial group set up to suggest measures to ease the financial stress in the telecom sector will meet on Tuesday to give its final recommendations. The group will consider various measures to not only boost cash flows, but also help revive the telecom sector in India.

Here are the expectations:

Longer Spectrum Payment Period

The group is considering to increase period of deferred spectrum liability payment to 16 years from the current 10. This would improve the cash flow and ease the cash payment burden of telecom companies.

A part of the spectrum auction amount is taken as upfront payment by the Department of Telecom and the rest is paid in 10 instalments after a two-year moratorium. The sector has more than Rs 2.9 lakh crore as deferred spectrum liability, according to the data compiled by BloombergQuint.

Change In Lending Rate Benchmark

The IMG is also considering a proposal to shift from the prime lending rate to marginal cost of funds based lending rate for interest and penalty payments towards deferred spectrum, licence fee and spectrum usage charges.

Currently, SBI’s benchmark PLR is at 13.75 percent while the base rate is 9 percent. This 4.75 percent reduction in interest rate could help save the telecom companies close to Rs 14,000 crore considering the current deferred spectrum liability.

A Lower Or No USOF

The inter-ministerial panel is considering to reduce or scrap Universal Service Obligation Fund, a contribution telecom operators make for improving rural connectivity.

Telecom operators pay 5 percent of the adjusted gross revenue as a contribution towards USOF. The aggregate amount stood close to Rs 8,600 crore for the year ended March 2017.

IMG may look at reducing it from 5 per cent to 3 per cent as private operators have already rolled out services in rural areas. Reducing or scrapping the USOF would lower licence fees without impacting government revenue.

Telecom companies had a total adjusted gross revenue of more than Rs 1.41 lakh crore for the year to March, down 4 percent over a year ago.