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Ministry vows 'corrective steps' on telecom sector woes

23 June 2017

With Indian telecoms firms worried about their bottom lines following the disruptively-priced entry of Reliance Jio, the government on Thursday assured the telecom sector it would take corrective steps to ensure growth and deal with financial stress and declining revenues.

Union minister of communications Manoj Sinha met top executives of telecom firms, including Bharti Enterprises founder and chairman Sunil Mittal, Reliance Group chairman Anil Ambani, Tata Sons director Ishaat Hussain, Reliance Jio board member Mahendra Nahata, and Idea Cellular managing director Himanshu Kapania. Telenor CEO Sharad Mehrotra was also present at the meeting.

Notable absentees from the meeting were Vodafone and Aircel.

''An inter-ministerial group has been constituted to examine the issues affecting repayment capability and viability in the telecom sector. Their report is expected soon,'' Sinha said after the two-hour meeting. ''Corrective steps will be taken by the government for ensuring orderly growth in this sector in terms of services to the common man.''

Sinha's meeting with the telecom bigwigs comes amid a financial crisis in the telecom sector. The industry faces serious revenue and profitability pressures, and its debt has risen to a colossal Rs4.6 lakh crore.

Officials of State Bank of India were also present at the meeting and are understood to have said that sector is indeed facing financial difficulties with operational profit tanking to Rs45,000 crore from Rs75,000 crore just two years back.

They also warned that the sector is staring at a deficit of Rs80,000-90,000 crore after taking into account the interest payments, loan repayments, and capex requirements.

During the meeting, Jio is believed to have dubbed the stress in the telecom sector as a misconception, reports PTI. It said the sector's operating profit margins at 30 per cent are among the highest as compared to other industries. Jio reiterated the arguments it had made to the inter-ministerial group last week, that large operators should bring in more equity and reduce debt.

Asked by PTI about Jio's allegations that operators were not infusing enough equity, Bharti Airtel chairman Sunil Mittal quipped, ''Please go and look at our balance sheet.''

In the meeting, Airtel is learnt to have said that the return on capital has come down from 6 per cent to 3.4 per cent in the last quarter of fiscal 2017. Justifying the revenue dip in telecom sector, Jio is learnt to have said that revenue of state-run operators too had taken a hit in 2002-03 due to the entry of private operators in the long-distance telephony space, and the sector had been affected again in 2008 when new players entered the market. However, it added, the industry revenue grew subsequently.

The incumbent operators and Jio differed sharply over the contentious issue of call connect charges, with the newcomer favouring removal of these rates and incumbents demanding an increase in the current rate of 14 paise/minute. An official present at the meeting said that incumbent operators also pointed to the asymmetric traffic to justify their demand for an increase in the Interconnection Usage Charges.

SBI, which had last week met the inter-ministerial group, supported deferment of spectrum payment with moratorium of 3-5 years and increase in installments. It also favoured reduction in levies and taxes from the current level of 33 per cent to 22 per cent in tune with global practices.

The meeting comes just days after the inter-ministerial group held a dialogue with all telecom companies on the industry's financial stress and measures that can be taken to ease the situation. The Telecom Regulatory Authority of India too had met the telecom companies last week, where Idea Cellular suggested imposition of a minimum floor price for voice and data services. (See: Incumbent telcos ask Trai to fix floor price for voice, data)

Tata Teleservices said the biggest cost was spectrum and deferred payments should be aligned to the licence period. Airtel, Idea and Telenor supported the idea of deferred payments.

SBI managing director B Sriram said the industry had a deficit of about Rs80,000-90,000 crore, taking into consideration interest payments, loan repayments, and capex requirements.

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