Customers wait to recharge their mobile phones as a vendor checks another device at a mobile phone store in the Dharavi slum area of Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Birla Flags Concerns On Liquidity, High Spectrum Payment To Government

Kumar Mangalam Birla, chairman of Vodafone Idea Ltd., flagged concerns about severe liquidity crunch in the telecom sector and high spectrum payments at a recent meeting with Telecom Minister Manoj Sinha, an official said.

The telecom sector has been battered by falling tariffs, eroding profitability, and mounting debt, in the face of stiff competition triggered by disruptive offerings of Reliance Jio Infocomm Ltd., owned by richest Indian Mukesh Ambani.

Birla, head of the Aditya Birla Group, raised the issue during a meeting with Sinha, which was also attended by Telecom Secretary Aruna Sundararajan.

A senior Telecom Ministry official, who did not wish to be named, said the meeting took place recently where Birla talked about the severe liquidity crunch in the market, and underscored the need for relief.

The talks were informal and the Department of Telecom will take a view on the issue once a formal representation is made, the official told PTI. Vodafone Idea declined to comment on an e-mailed query sent to the company.

The Vodafone Idea head is said to have expressed concern over Rs 30,000 crore that is locked up on account of the goods and service tax payment under ‘reverse charge mechanism’.

Under the GST 'reverse charge mechanism' provision, registered dealers are required to make tax payments in case he procures goods from unregistered businesses.

The provision was applicable from July 1, 2017 till Oct. 12, 2017. With companies facing trouble in implementing the provision, the GST Council decided to keep the mechanism in abeyance till Sept. 30, 2019.

Among other concerns highlighted by Birla was the high upfront payment for radiowaves, the official said adding he has sought that period of payment for spectrum purchases be increased to 18 years from the current 16, and favoured a moratorium.

High levies in the telecom sector and the recent hike in import duty also figured in the talks, said the official but did not elaborate.

A bruising tariff war sparked by the entry of Reliance Jio into the telecom sector with free voice calls and SMS, bundled with cheap data has led to pressure on margins of incumbents which have scrambled to match competition.

Earlier this month, at its maiden earnings announcement as a joint entity, Vodafone Idea reported a consolidated loss of Rs 4,973 crore for the September quarter and announced a fund infusion of Rs 25,000 crore to help it take on brutal competition.

Also read: Vodafone Idea Plans To Raise Rs 25,000 Crore

Bharti Airtel too reported a drop in consolidated net profit for the tenth straight quarter as losses on mainstay India business widened due to pricing pressure from aggressive competition. Overall, its consolidated net profit of Rs 118.8 crore in July-September represented a drop of about 65 percent from Rs 343 crore in the year ago period.

Bharti Airtel’s loss from India operations (before exceptional items) mounted to Rs 1,646.4 crore in the second quarter of the current fiscal compared to about Rs 940 crore in the preceding three-month period.

Moody's Investors Service recently placed Bharti Airtel's rating on review for downgrade, following low levels of profitability and expectation of weak cash flow.

Also read: Bharti Airtel's Ratings May Be Downgraded to Junk by Moody's