The Indian telecom sector is reeling under a cumulative debt of Rs 4.6 trillion and facing severe pressure on revenue and profitability. So much so that, the financially stressed telecom incumbents have rushed to the government for a bailout package, which the government is considering.
This is not the first time that telecom firms have asked for a bailout. Earlier, in 1999, the sector obtained a bailout in the wake of the crisis stemming from the country-wide spectrum auction that took place in the mid-1990s. The auction was badly designed, and the net result was a slow roll-out of services because of the financial stress borne by the auction-winners, slow clearances for frequency allocations, and the lack of a suitable framework for managing the interconnect arrangements. To bail out the sector, the government waived the existing obligations of telecom firms in lieu of a revenue-sharing agreement, including the licence fees fixed earlier.
This is similar to what has been proposed by the inter-ministerial group (IMG) set up in May 2017 to study the financial constraints of the sector and suggest solutions. The IMG has recommended that the deferred payment schedule for spectrum should be increased from 10 years to 16 years and the replacement of the prime lending rate (PLR) with a marginal cost of fund-based lending rate (MCLR) for calculating the interest to be paid by operators on delayed payment of the licence fee and spectrum usage charge. Although the Telecom Commission is not fully in agreement with the recommendations, it is working towards achieving a middle ground with the IMG.
While there are some striking parallels between these two crises, the one big difference is the entry of Reliance Jio in 2016. The company’s entry has resulted in consolidation among telecom companies and Jio’s expansion plans may put further pressure on the incumbents.
In a recent development, Sweden-based Ericsson has filed insolvency petitions against Reliance Communications and two of its subsidiaries before the National Company Law Tribunal in Mumbai for recovering dues totalling about Rs 11.54 billion.
Such developments call for immediate action, both to keep a check on the competitionrelated stress in the market as well as to devise a new policy and regulatory framework suited to the prevailing market conditions.
