Warning message

The scaling down of licence fees could reportedly save Airtel, Vodafone-Idea and Jio a combined Rs 4,000-5,000 crore annually.

Govt mulling reducing licence fees of telecom companies
Money Telecom Tuesday, December 24, 2019 - 15:00

In yet another sop to the industry, the government is mulling reduction in the licence fee being paid by the telecom companies, as per an Economic Times report. Currently 8% fee is levied which comprises 5% Universal Service Obligation Fund (USOF) and 3% pure licence fee. The indications are that these rates could be cut to 3% and 2% respectively to make it 5% overall. There is a possibility the government may cut it to 6% absorbing a 2% drop as well.

The estimate is that if the government does go ahead and implements this suggestion the three telecom companies, Airtel, Vodafone Idea and Reliance Jio may end up saving Rs 2,000 crore, Rs 800 crore and Rs 1,500 crore on an annual basis. This might give them some relief. The government has already announced a two-year moratorium on spectrum fees and then a 16-year payment plan in equated annual instalments. This decision, which has already been approved by the Union Cabinet, gives a relief of Rs 42,000 crore in terms of the cashflow, even though the amount needs to be paid by the companies over the next 18 years.

These two decisions combined do offer some solace to the telecom industry which has been seeking relief over the past few months. Their financial situations, particularly Airtel and Vodafone Idea have been quite alarming and deteriorating rapidly. The government has had to postpone the auction of further spectrum to roll out the 5G service.

However, the real issue facing the industry is the DoT demand for the AGR-based licence fee for the previous years running into several thousand crores. The worst part of that is the government cannot do much in it since the order has been passed by the Supreme Court. It still remains to be seen what stand the apex court takes when the petitions filed by Airtel and Vodafone Idea come up for hearing. Their petitions are meant for limited review by the court, asking for waiver of the penalty and the interest etc.

The dues to be paid by Airtel amount to Rs 35,500 crore while it is Rs 53,000 crore for Vodafone Idea. The companies are trying to raise funds through private investments to pay off these debts and to make further investments. Airtel is hoping to bring in $3 billion. Vodafone Idea has not revealed its plans yet.

Experts are the opinion that if the government brings down the licence fees the prospects for the industry itself will look slightly brighter. The companies have recently increased their tariffs which may stem their losses to some extent. The combined effect of all these will prove helpful to the companies in convincing the prospective investors.  

Become a TNM Member for just Rs 999!
You can also support us with a one-time payment.