Govt likely to reject telcos' demand for 2-year spectrum fee moratorium

Recently, SC had upheld the government's definition of adjusted gross revenue (AGR) and directed telecom operators to pay up the pending dues that could add up to an estimated Rs 1.33 trillion

The finance ministry is likely to reject a telecom industry demand for a two-year moratorium on payment for spectrum bought in previous auctions, according to an official in the know. This would come as a double whammy for telcos reeling from severe financial stress. 

Recently, in an unrelated development, the Supreme Court had upheld the government’s definition of adjusted gross revenue (AGR) and directed telecom operators to pay up the pending licence fee and other charges that could add up to an estimated Rs 1.33 trillion. 

Last month, Vodafone Idea had sought relief from the government in paying out the spectrum dues. Subsequently, the Department of Telecom (DoT) was considering a two-year moratorium for all telcos — Bharti Airtel, Vodafone Idea and Reliance Jio — in paying the dues for spectrum auctioned earlier.

The government had in 2017 allowed telcos to stretch the tenure of instalments for spectrum payment to 16 years from 10 earlier. But top officials of UK-based Vodafone had met DoT Secretary Anshu Prakash in September, wanting a two-year holiday on spectrum charges which are due for FY20 and FY21. 

A senior finance ministry official pointed out that given the challenging fiscal situation this year, the government is banking on non-tax revenue items to make up for some of the anticipated tax revenue shortfall. “So any relaxation or waiver cannot be given on spectrum fee,” he said. 

After Telecom Minister Ravi Shankar Prasad’s recent assurance that the government was looking at spectrum pricing reforms, the finance ministry’s move could upset the industry hoping for some respite. Telcos together will have to pay Rs 49,040 crore (Rs 24,520 crore per annum) to the government as spectrum payments over the next two years. 

Revenues from telcos are a significant portion of the non-tax revenues of the government. Revenues from other communications services, including fees and proceeds from spectrum sales, have been budgeted at Rs 50,520 crores during the current year. In 2018-19, the Budget Estimate under the same head was Rs 48,660 crore, but the Revised Estimate was lower at Rs 39,245 crore. 

After fetching a little over Rs  70,000 crore for the exchequer in 2016-17, revenues from communication have not crossed 

Rs 40,000 crore. 

The current estimates are based on revenue expectations from deferred payments for earlier spectrum auctions as well as for 4G and 5G airwave sale likely this financial year. However, the lack of availability of adequate 5G spectrum and the high base price of airwaves across the board could make the participation of telcos muted. 

Even though the 5G scene looks gloomy, the recent Supreme Court order on AGR could mean a windfall for the government in terms of non-tax revenues. The apex court has asked telcos to pay up the AGR dues within three months. 

The current operating telecom players have a debt of over Rs  4 trillion in their books and losses of Rs  36,000 crore with an Ebitda of only Rs  30,550 crore, according to Cellular Operators Association of India (COAI). In other words, the industry’s combined Ebitda is just about enough for their deferred spectrum payouts. 

The worst hit on the spectrum payment front is Vodafone India, which has to fork out over Rs  12,273 crore each year. That’s more than the company’s current market capitalisation and pretty close to its 2018-19 loss of over Rs  14,603 crore. Also, now it has to pay more than Rs  28,308 crore (without additional spectrum usage charges) as a result of the SC verdict.