By allowing the recasting of debt, the government has given Telcos elbow room

The NDA government’s decision to allow recasting of telecom operators’ debt worth Rs 4.62 lakh crore and enable them to repay over 16 years as against the earlier 10 years will help to improve liquidity in the sector. While accruals to the government against spectrum payments and licence fees will be much lower, it is assured of a constant revenue flow till 2034-35 from the top four players. Overall, the accruals via the deferred payment liability would be Rs 74,446 crore after having increased the repayment period by six years.

Interestingly, the cabinet’s decision is likely to improve the balance sheets of banks vis-à-vis their exposure to the sector. In fact, telecom sector loans constitute over 40 per cent of total liabilities that banks hold as on date. The government’s efforts to tackle unsustainable non-performing assets of banks would also speed up after having re-capitalised them with over Rs 104,000 crore in a phased manner.

Given the stringent competition, disruptive pricing regime and lower spread in margins after the entry of Reliance Jio, telecom companies will only be happier with improved cash flows. These cash balances, if put to judicious use, will enable the companies to make investments in strengthening telecom connectivity, support infrastructure and push up the quality of services offered to customers. There is no reason to disbelieve the government when it says telecom loans restructuring, coupled with longer repayment schedule should allow telecom companies to make fresh investments as well. The mood in the telecom industry was to attempt the revival of smaller players wherever possible. Alternatively, the mergers and acquisitions route was kept as an option to be pursued doggedly for industry players to stay in the black.

Easing of liquidity for telecom companies may allow the large players to bid in the next round of spectrum auctions more aggressively. The telecom CFOs will like more revenue sacrifices by the government through duties, taxes calibration and lower revenue share. What will, however, sustain the telecom companies is improved efficiency, better spectrum utilisation or 5G data networks.

The cabinet has also laid the foundation for consolidation by enhancing spectrum holding to 35 per cent from 25 per cent. Removal of caps on different spectrum frequencies while retaining the 50 per cent limit on sub-one GHz airwaves would allow the companies to restructure their operations and get rid of loss-making circles. If the on-going churn in the industry is any indication, only four major players are expected to be left in the field with Reliance Jio, Bharti Airtel, BSNL-MTNL and Vodafone-Idea Cellular accounting for the spread of network connectivity.

Already, the cabinet had in phases sold a lot of high frequency spectrum of state-run telecom enterprises like BSNL-MTNL. This trend will, in all probability, extend to three top private telecom players as well. Long-term sustainability of these companies is important as the digital economy’s spread and delivery of socio-economic services in villages depend largely on ICT companies. However, telecom players will have to evolve new models for sustainability. Expanding the operational canvas beyond Indian borders and pursuing trans-national linkages should be an option.

Technology adoption on a global scale may still be an issue with Indian players though they have the advantage of low-cost operations, research and development. This again is interlinked with the spread of the telecom equipment industry. One option could also be to make India a research and development hub for new technologies having application in both telecom and information technology industry. In the new telecom policy to be rolled out in a month or two, the government will have to take on board all these options as well.