A bailout on the cards: DoT takes a call to cut levies as telcos bleed

The government is looking at reducing the spectrum usage charges (SUC) and other levies in a move to help the stressed telecom sector emerge stronger.
 

The Department of Telecommunications (DoT) has indicated that as part of the national telecom policy, which is likely to be released next month,  various levies and charges including SUC would be reviewed in line with the input tax credit available.

Telecom operators pay 8 per cent of their adjusted gross revenue (AGR) as licence fee and SUC is pegged in the range of 3 to 6 per cent depending on the type of airwaves they have. The industry has been demanding lower taxes and levies, which add up to about 30 per cent of the revenues. 
 

The inter-ministerial group, which was set up last year to address the financial stress of telcos, had not offered any relief on SUC and licence fee in the measures announced a few months ago. 

The outstanding debt in the industry is pegged at over Rs 4.5 trillion, incurred mainly on account of payments for spectrum, and other levies. 
 

“We have explicitly said that SUC will be rationalised so that it will cover administrative charges. That is a very clear indication of the direction which we intend to go, so that will get done,” Telecom Secretary Aruna Sundararajan said on Friday. 

The revised SUC and other levies will be implemented immediately after being notified in the new telecom policy. 

As part of the draft of the telecom policy, termed National Digital Communications Policy, 2018, the government proposes to review levies and fees including licence fee, universal service obligation fund (USOF) levy and concept of pass through revenues in line with principles of input line credit. It has also proposed rationalising of SUC to reflect the costs of regulation and administration of spectrum. 

Telecom Secretary Aruna Sundararajan

The other major policy initiative will be around optimal pricing of spectrum for future auctions, which means that the reserve price will not be too steep that will deter operators to participate in the sale. The government felt that in the last auction about 62 per cent of spectrum remained unsold and going forward, the objective would be to sell the entire spectrum.

“The first objective would be to see that all the spectrum is sold. Also, we have had a situation where due to lack of device ecosystem like in 700 MHz band, there were no takers--such anomalies need to be ironed out,” Sundararajan said. The government aims to triple broadband penetration to 100 per cent from the current 30 per cent by 2022. For that, a large amount of spectrum is required along with adequate fibre backhaul. 
 

The input resources including spectrum have to be priced optimally in order to achieve the outcome.

The DoT is hopeful that once the current phase of consolidation is over, profitability will return to the sector as there will be big three to four players in the market who can invest heavily. 

“The fundamentals are very robust. It is true that currently the industry is undergoing stress, there is huge technology disruption happening, there is a shakeout of players. However, (after consolidation) the three-four players who are left are all giants,” she said, adding the players “are capable of pumping in massive capital and they also have shown in the past that they will be able to deliver cutting edge services, so that is why we are saying that investment will flow in the market in the medium and long term…we are not saying this investment is going to come in the next 12 months.”

On whether the government would suffer a dent in revenues due to rationalisation of levies, the secretary said it may not result in a permanent fall in revenues of the government. “In fact the department’s view is that this may actually see an expansion of revenues because the ecosystem will be much larger,” she added.

A bailout on the cards

• Telcos currently pay 30% of revenues in taxes and any reduction will increase cash flows and improve profitability
• The new telecom policy specifying revised levies likely to be announced in June
• Spectrum to be priced optimally for future auctions
• Decision on E and V band spectrum, used for backhaul infrastructure, to be taken after proper consultation
• The E and V band allocation of spectrum will be in line with global practices as well as Supreme Court mandate
• Govt aims to attract an investment of $100 bn by 2022, which it feels will come given the robust potential in the Indian market

The draft policy aims to attract $100 billion investments in the digital communications sector by 2022 through reforms. Other objectives of the policy include broadband for all, creation of an additional 4 million jobs in the communications sector and propelling India to the top 50 nations’ slot in ICT development.