Government set to push for floor price for telecom services

The Government, in effort to ensure sectoral viability, is set to push for a floor price for services provided by telecom companies. The Department of Telecom and the Finance Ministry are in agreement on this floor price proposal, which will act like a support mechanism akin to the fair and remunerative price for the sugarcane industry.

Ravinder Takkar, MD of Vi, had said that low tariffs and the lack of a floor price for them remain the biggest hurdles to improvement in the health of the telecom sector. The total dues owed by Vi just to the DoT are in excess of Rs 1.5 lakh crore – Rs 58,000 crore in adjusted gross revenues and Rs 96,000 crore in deferred spectrum payments. The company also owes Rs 23,000 crore to banks and other lenders.

A floor price means that the government will affix a minimum price for voice and data services, and no telecom operator can offer their services at a fee lower than this sum. A floor price would automatically guarantee a steady influx of cash.

Senior government officials highlighted that the DoT, in discussions with the Finance Ministry and other departments proposed that loss-making Vodafone India (Vi) be allowed to convert its debt to equity.

An official said the floor price could be hiked by up to Rs 30 per user, but the proposal to allow moratorium on spectrum payments and encashment of guarantees are being opposed within the government. “Even if we allow a moratorium on spectrum payments, or say the company’s (Vi) debt is converted into equity, the fact remains that its net worth is negative. The company needs liquid cash to run operations and survive. This is possible only when it generates money from users,” he said.

Also Read: Plum crosses 100,000 members on its platform

In regards to converting Vi’s debt into equity, a DoT official said no options are off the table. “There will not be much hit for the customers, even if Vi were to close down, as they can easily shift to other networks. The government’s dues are at stake. We are looking at what best we can do to take care of all stakeholders,” he said.

Telecom analysts believe the government has no option but to save the company if it wants to ever recover its dues. “They can just let the company slip to insolvency because of the huge dues. Ideally, they should have been more vigilant about it, but the Supreme Court judgment coming in 2019 when the sector’s health was already poor, not much could be done.”