Indian government offers token relief to beleaguered telcos

With two of its three major telcos on the verge of bankruptcy, the Indian government has deferred a tiny proportion of what they owe it for a year or two.

Specifically the government is letting operators defer payments due for auctioned spectrum, which amount to Rs 42,000 crore. India, annoyingly, has its own system for naming larger numbers and crore means ten million. While 420 billion rupees might seem like a serious chunk of change, the government also wants Rs 1.47 lakh crore from them for historical license fees and there is no relief being offered on that. Lakh means a hundred thousand, so lakh crore means a trillion, making the latter sum three times larger (we think).

“Department of Telecommunication will give an option to the Telecom Service Providers (TSPs) to defer payment of the spectrum auction instalments due for 2020-21 & 2021-22, either for one or both years,” said the government announcement. “These deferred amounts bill be spread equally in the remaining instalments to be paid by TSPs. Interest as stipulated while auctioning of the concerned spectrum will however be charged so that NPV is protected.

“Deferment of spectrum auction instalments will ease the cash outflow of the stressed TSPs and facilitate payment of statutory liabilities and interest on bank loans. Continued operation by TSPs will give a fillip to employment and economic growth. Improved financial health of TSPs will facilitate maintenance of quality of services to consumer.”

That last part is a masterpiece of understatement. “Continued operation by TSPs will give a fillip to employment and economic growth.” You don’t say. The head of lobby group Cellular Operators Association of India (COAI), Rajan Mathews, tweeted a measured response that made it clear his organisation didn’t think this concession was enough.

What the industry wants is a significant reduction of the amounts of money being demanded of it by the government. The definition of adjusted gross revenue (AGR) is what has brought about this crisis, but it’s hard to avoid the conclusion that the Indian state is being excessively rapacious towards its operators which, as its own announcement conceded, are important drivers of employment and economic growth.

Indian operators hit with $13 billion government bill

The Indian government charges operators 10% of their gross revenue in license and spectrum fees and the operators would like to pay less.

This resulted in a demand from the government that operators hand over 920 billion rupees (~$13 billion) in underpayments plus interest. That demand found its way to India’s top court, which has upheld it according to a Reuters report. That would appear to be the end of the matter, if the share price hit the operators took is anything to go by.

The issue doesn’t seem to be the fees themselves, although they do seem suffocatingly high, but the definition of ‘adjusted gross revenue’, from which they are derived. It seems safe to assume that the operators reckon that figure is considerably lower than the government does and the courts have gone with the latter.

“This decision has come at a time when the (telecoms) sector is facing severe financial stress and may further weaken the viability of the sector as a whole,” said an Airtel statement to Reuters. “Today’s order has huge impact on two private operators while most of the other impacted operators have exited the sector,” said the Vodafone Idea statement.

The backlog of fees would appear to stretch back quite a few years as the impact on Reliance Jio, which has only been around since 2016, is far less. The bill comes at a very trying time for the sector in India, with the incumbents struggling, state-owned firms needing to be bailed out and even Jio starting to feel the strain. Not the best time for a government cash grab.