In what could be a major relief for the telecom sector which is reeling under huge debt and cut-throat competition, the central government may announce a reduction in licence fees of telecom companies from 8 per cent to either 5 per cent or 6 per cent. The centre is likely to make an announcement this week after a meeting at the highest level. The reduction in licence fee is expected to save to the three major telcos a combined amount of Rs 4,000-5,000 crore annually.
Financial daily, the Economic Times quoted one of the government officials, he said, "The government cannot do anything about the AGR dues, which has been decided by the Supreme Court. From the initial suggestions of relief measures, a licence fee cut will be taken up now following the two-year spectrum moratorium already announced."
Reduction a drop in the ocean: Industry experts
The announcement will definitely give some relief to the telecom industry but the experts are apprehensive that it would be too little for the industry which is under huge debt due to the prices reaching the lowest levels, a price-war started by the new entrant Reliance Jio in the market. The other two major telcos including Bharti Airtel and Vodafone idea are facing statutory dues of over crore Rs 35,500 and Rs 53,000 crore, respectively.
Notably, the centre has constituted the Committee of Secretaries (CoS) to suggest the measures to improve the health of the telecom sector which has also witnessed consolidation and mass layoffs. The committee, last month had recommended a reduction in the licence fee paid by telecom companies along with a two-year window for the spectrum payments. While the government gave its go-ahead on the two-year window, which gave a Rs. 42,000 crore cash flow relief to the three private telcos, the issue of reduction in license fee is yet to take up.
Presently, the telecom companies pay around 8 percent of their adjusted gross revenue (AGR) as license fees. The analyst argues that if this license fee gets reduced to 5 percent, Bharti Airtel will save around Rs 2,000 crore, Jio Rs1,500 crore and Vodafone Idea around Rs 800 crore in the coming financial year. Rajiv Sharma, head of research at SBICap Securities, said, "If this (licence fee cut) happens, then this would be a step in the right direction since Indian licence holders are on the higher side of regulatory charges. However, it will not be enough to address the near-term balance sheet concerns pertaining to the AGR issue."