Telecom Commission Worried Over Sector’s Health; Cautions About Loan Defaults

India's Telecom Commission, the highest policy-making body of the sector, has warned of a loan default by operators and asked regulator Telecom Regulatory Authority of India (TRAI) to revisit its tariff orders and free promotional offers of companies like Reliance Jio Infocomm Ltd.

The then Telecom Secretary J S Deepak, who headed the Telecom Commission (TC), on February 23 wrote to TRAI Chairman RS Sharma about the “serious impact” of the promotional offers on the financial health of the sector and the capability of the companies to meet their contractual commitments, including payment of installments for spectrum purchased, and repayment of loans.

Days after writing the letter, which found way into the media, Deepak left for Barcelona to attend the Mobile World Congress (MWC). And while he was in Barcelona, the government issued an order appointing him India's permanent representative to the World Trade Organisation with effect from June 1, 2017 but asked him to immediately move as OSD in the Commerce Ministry.

Incidentally, Deepak, a 1982 batch Indian Administrative Services (IAS) Officer from the Uttar Pradesh cadre, had during the first stint at the Department of Telecom (DoT), as joint secretary from April 2008 to July 2010 had helped administer and popularise the e-auction method for the third generation (3G) spectrum auctions.

In the May-June 2010 auctions, Infotel Broadband Services Pvt Ltd. had outbid incumbents Bharti Airtel Ltd., Vodafone India and Idea Cellular Ltd. to bag all-India BWA (broadband wireless access) spectrum. The firm was within hours of it winning the spectrum was acquired by Reliance. It was later allowed to use the spectrum allocated for broadband for mobile voice calling services as well.

In the recent letter, Deepak reflected the Telecom Commission's concerns over downward trend in government revenue because of “a tariff war in the industry triggered by free promotional offers.” Reliance Jio offered free voice and data in the promotional offer.

The Telecom Commission has raised a red flag on the “serious” implications of the situation on the financial health of the telecom sector, its revenue growth prospects and the wider ramification for the banking and financial sector, that has Rs 4.60 lakh crore debt exposure to telecom industry.

The Telecom Commission's recent meeting noted that licence fee collections for the current fiscal have been showing “alarming” downward trend on a quarter to quarter basis.

“These collections have fallen from Rs 3,975 crore in Q1 (first quarter) to Rs 3,584 crore in second quarter to Rs 3,186 crore in the third quarter. It is expected that this revenue will further decline in fourth quarter by about 8-10 percent. The annual spectrum usage charge revenues are also likely to face a similar decline,” said the letter.

Stating that the licence fee collection of the government from the telecom sector had grown continuously since the beginning of the revenue share regime in August 1999, in spite of reduction in licence fee rates and tariffs, Deepak added that current financial year will see a reversal of the trend, a “matter of grave concern”.