Moneycontrol BureauOverburdened with debt, telecom companies are going through tough times and the only silver lining for them is if the government provides them with fiscal relief measures to increase cash flows.
According to sources privy to the information, telecom operators are likely to write to the government to seek an extension in spectrum payment tenures from 10 to 18 years, reports Economic Times. This will enable a mobile carrier to spread out its airwaves related payments over the 20-year tenure of a licence, including the two-year moratorium.
What are telcos demanding?
- Easing in spectrum payment norms coupled with 90-day deadline extension for licence fee
- Extension in paying spectrum usage charges (SUC) to reduce financial stress
- Overall reduction in regulatory costs
- Amendments in SUC payout rules
- To allow payments at the end of a quarter based on actual revenue instead of at the start of a period based on estimated revenues
- To persuade banks to extend long-term loans with 20-year tenures and explore ways to restructure the existing loans
If the demands get an approval then it will significantly reduce annual spectrum liabilities and boost cash flows, said a leading telecom company. This will give the telecom companies better scope to spend more on data networks and focus more on improving customer experience.
Issue of tax treatment of spectrum payments
Spectrum is quintessential to provide telecom services and the mobile operators invest crores of rupees to acquire spectrum rights. These huge costs in turn burdens the telecom companies. To ease the pain they have been seeking tax reliefs and write-offs of some expenditure made by these companies.
The enactment of Section 35ABA of the I-T Act, which entails amortization of spectrum over its 20-year tenure, effective April 1, 2016, has created a lot of confusion amid the mobile operators.
Phone companies need clarification if, “spectrum allocated before April 1, 2016, would continue to be governed by Section 32 of the Act and not Section 35ABA, which would allow telcos to continue capitalising spectrum expenses and claim depreciation-related tax benefits.”Falling profits, debts, buying spectrum
It seems the telecom companies are fighting a losing battle with falling profits and increasing debts. India’s largest telecom operator Bharti Airtel reported weak set of numbers in the third quarter, underlining the stress in the telecom space. More and more debt incurred by the telcos is another troubling issue. But, the major concern is buying of spectrum.
To provide better services to the consumers, telecom operators have to purchase higher frequency spectrums. Now, the cost of these spectrums are exorbitant which leads to financial ill-health of the phone companies. Buying higher frequency spectrums is the only choice for these companies to address the issue of call drops and other network issues.
Budget expectation
In the Union Budget 2017, there was no mention of the financial health of the telecom companies and Cellular Operators Association of India’s (COAI) Chairman Rajan Mathews said that this has disappointed the telcos.
The phone companies were also seeking more clarity on the tax treatment of spectrum buyouts this Budget.
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