Lok Sabha Question No. 708 (UNSTARRED), answered on 2018-02-07
Subject: Financial Stress in Telecom Sector
Ministry: COMMUNICATIONS
Asked by: INNOCENT

## GOVERNMENT OF INDIA MINISTRY OF COMMUNICATIONS DEPARTMENT OF TELECOMMUNICATIONS

## LOK  SABHA UNSTARRED QUESTION NO. 708 TO BE ANSWERED ON 7 TH  FEBRUARY, 2018

## FINANCIAL STRESS IN TELECOM SECTOR

708. SHRI INNOCENT:

Will the Minister of COMMUNICATIONS be pleased to state:

- (a)  whether  the  Government  has  received  any  communication  from  the  State  Bank  of  India about the unusual unsustainable levels of debt of telecom companies;
- (b) if so, the details thereof and the action taken by the Government thereon;
- (c)  whether  the  telecom  industry  has  sought  deferred  payment  for  the  purchase  of  spectrum with a moratorium of five years instead of current payback plan of ten years after a two year moratorium; and
- (d) if so, the details thereof and the reaction of Government thereto?

## ANSWER

## THE MINISTER OF STATE (IC) OF THE MINISTRY OF COMMUNICATIONS & MINISTER OF STATE IN THE MINISTRY OF RAILWAYS (SHRI MANOJ SINHA)

- (a) & (b) Government  of  India,  Department  of  Telecom  received  a  letter  from Chairman, State Bank of India on 22 nd  May, 2017. The letter was duly considered by the IMG (formed on 16.05.2017) in its examination of systemic issues affecting viability & repayment capacity in Telecom Sector.  The copy of the letter is attached as Annexure-

A.

- (c)            Department  of  Telecom  received  a  letter  from  Director  General,  Cellular Operators Association of India (COAI) on 29 th  June, 2017.  This letter contained many issues  including  requests  for  increase  in  payment  schedule  for  deferred  spectrum payment liability to 20 years (5-year moratorium plus 15-year payment period).  Further, during the submissions to Inter Ministerial Group (IMG), few TSP's, including Airtel and Vodafone, had sought the same.
- (d) An  Inter-Ministerial  Group  (IMG)  was  constituted  on  16/05/2017  with  following terms of reference:
-  To examine systemic issues affecting viability and repayment capacity in telecom sector and  furnish recommendations for resolution of stressed assets,
-  Policy reforms and strategic interventions for Telecom sector.

The  IMG  submitted  its  report  on  31/08/2017.  The  IMG  inter-alia  recommended  that regarding the tenure of deferred Payment Liability on Spectrum, the Telecom Service Providers may be given a one- time opportunity to opt for higher number of installments (16) instead of the currently permitted 10 installments. The IMG did not recommend any change in the moratorium period of two years. The recommendation has been approved by Telecom Commission and is under process for approval by Cabinet.

## Dear Ms. Sundararajan,

We understand that Govt of India has formed an inter-ministerial panel to suggest policy reforms for the telecom sector, which is reeling under severe financial stress. As Lenders, we are highly exposed to Telecom Sector with total lending of more than Rs 4 lakh crore. We would therefore like to represent some of our observations and recommendations to help this sector tide over this current crisis.

Indian  telecom  market  is  one  of  the  fastest  and  largest  telecom  markets  in  the  world.  This industry has seen a high growth phase of 15 years till year 2016.Telecom sector contributed 6.5% to  GDP  during  FY16.  The  sector  went  through  its  first  crisis  in  the  wake  of  sweeping cancellation  of  licenses  by  the  courts.  However  since  then  the  sector  has  forged  ahead  and increased  mobile  penetration  in  the  country  hugely.  Given  this  scenario,  Banks  also  lent  large amounts to the sector for expansion as well as purchase of spectrum through auctions. The number of players in the sector was more than 11/12 which was unsustainable and it was necessary for some of them to get consolidated with the larger players. This has been happening at a fast pace in the last couple of years. Some of the transactions have led to foreign players exiting the market altogether (eg. Telenor, DoCoMo), or becoming a minority shareholder by merging their business in existing players (eg. MTS,  Vodafone and IDEA also merging to form 50:50 JV). It is a question as to how this reflects on the future prospects of the sector going ahead.

The stress in the sector has reached highly unsustainable levels after the entry of new players and launch  of  free  services  which  led  to  erosion  of  topline  and  EBITDA  of  the  telecom  service providers. The data with us suggests that the total EBITDA of the sector on annualized basis is Rs 65,000 crore which is clearly unsustainable for debt of more than Rs 4 lakh crore.

We request for immediate intervention to stem the slide. Detailed recommendations are given in the presentation attached. Some of the key recommendations are given below;

Contd……3/-

## State Bank Of India

Corporate Centre, 18th Floor, ARUNDHATI BHATTACHARYA                         state   Bank  Bhavan, Madame Cama Road, Chairman                                                       Mumbai - 400 021.

Tel. (D) : 022-22022799 I Fax : 022-22852708 I E-mail : chairman@sbi.co.in

22 nd May 2017

## Annexure 'A'

-          Deferred  payment  liability  (DPL)  for  spectrum  needs  to  be  aligned  to  the  life  of  the spectrum i.e. 20 years with a moratorium of 5 years and repayment of 15 years as against the current policy 2 years plus 10 years
- Rationalization of regulatory charges given there is  heavy  burden of industry specific  levy  for  telecom  sector,  (proposed  18%  GST,  8%  License  Fees,  2-6% Spectrum Usage Charges).
-  5% of License Fee taken for USO should be dispensed with, given the penetration and coverage being pan-India. Also, currently accumulated USO Fund has already reached more than Rs 45,000 crore.
-  Also, GST rates should be reduced to lowest bracket of 5% given the criticality of the sector to Indian Economy and cellular service becoming a necessity today.
- Resolution  of  definition  of  Adjusted  Gross  Revenues.  All  litigations  with  regards to same should be resolved through negotiations and one-time settlements thereby reducing the cost burden and freeing of NFB limits for other purpose.
- Inclusion of private players for utilization of  USO Fund accumulated for increasing the mobile  penetration in remote  areas. Eg. Private players could be able  to  put  a  tower  in  remote  location  at  competitive  rate  and  hence  such  work should be based on L1 tender basis.
- M&A  regulations  to  be  eased  to  ensure  quick  mergers  with  minimum  time required for approvals as well as minimum overhead costs for the same
- Income  from  Spectrum  Trading  not  to  be  counted  for  the  purpose  of  calculation of  AGR  given  that  any  premium  received  is  taxable  as  capital  gains.  This  will  also lead to efficient use of spectrum.

Given  the  importance  of  the  sector  to  the  economy  and  government's  push  towards  a  digital economy, there is a need for large scale intervention and policy impetus for the sector to revive.

We look forward to engaging extensively with you for early resolution of the above issues.

With Warm Regards

Yours sincerely,

(Arundhati Bhattacharya)

Ms Aruna Sundararajan Chairman (Telecom Commission) & Secy. (DoT) Department of Telecommunications Ministry of Communications Sanchar Bhawan 20, Ashoka Road, New Delhi 110001

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