It is welcome that the government is thinking of giving the stressed telecom sector some relief. Ironically, one of the proposals, reportedly, is to redefine adjusted gross revenue (AGR) to exclude non-telecom revenues. If the government had accepted this logic while the telcos were engaged in a long dispute over the legitimate revenue that had to be shared with the government, under the 1999 agreement that fixed licence fees as a share of the revenue rather than the unrealistic amounts bid by telcos to obtain their licence, that would have obviated the penalty and interest that have augmented the telcos’ dues to the government manifold.
The licence fees outstanding were ₹22,589 crore, on which penalty and interest amounted to nearly ₹70,000 crore. Since spectrum usage charge (SUC) also is computed as a share of AGR, exclusion of non-telecom revenue from AGR would have reduced their outgo as SUC as well. Another proposal is to bring down the revenue share that is collected by the government as licence fees and SUC.
Before spectrum was allocated on the basis of auctions, it was allotted to a telco bundled with its licence. The revenue share and the SUC were then collected ex post, as a share of the revenue. This made for capital efficiency, as no capital was locked up in upfront spectrum payment to the government. Whatever capital the telcos raised could be invested in building the network and collecting customers.
With spectrum being auctioned, the biggest expense for a telco became the spectrum fees. With such upfront payment for spectrum, the government should have slashed its revenue shares collected as licence fees and SUC. Instead, it persisted with these as significant chunks of telco revenues. It makes perfect sense to lower these charges to a fraction of the current levels, as in advanced markets.
A more innovative step would be for the government to convert, in part, at least, the debt the telcos owe it on account of spectrum fees into equity, as suggested by Deutsche Bank in the case of Vodafone Idea.
The licence fees outstanding were ₹22,589 crore, on which penalty and interest amounted to nearly ₹70,000 crore. Since spectrum usage charge (SUC) also is computed as a share of AGR, exclusion of non-telecom revenue from AGR would have reduced their outgo as SUC as well. Another proposal is to bring down the revenue share that is collected by the government as licence fees and SUC.
Before spectrum was allocated on the basis of auctions, it was allotted to a telco bundled with its licence. The revenue share and the SUC were then collected ex post, as a share of the revenue. This made for capital efficiency, as no capital was locked up in upfront spectrum payment to the government. Whatever capital the telcos raised could be invested in building the network and collecting customers.
With spectrum being auctioned, the biggest expense for a telco became the spectrum fees. With such upfront payment for spectrum, the government should have slashed its revenue shares collected as licence fees and SUC. Instead, it persisted with these as significant chunks of telco revenues. It makes perfect sense to lower these charges to a fraction of the current levels, as in advanced markets.
A more innovative step would be for the government to convert, in part, at least, the debt the telcos owe it on account of spectrum fees into equity, as suggested by Deutsche Bank in the case of Vodafone Idea.
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