Inter-ministerial group on telecom woes dismissed crisis theory, blamed telcos for high debt

The problem of high debt levels faced by some telecom companies in India was of their own making and the government had a limited to role to play in resolving the same, the inter-ministerial group set up to address the concerns of telecom sector found.

The cash flow issues faced by the companies is related to their heavy debt levels and a historical failure to invest required equity capital in these businesses, the group held.

“The IMG (inter-ministerial group) noted that the financial stress for some has been caused because of low operating cash flows over a number of years, inadequate equity infusion and debt which does not appear sustainable,” said telecom minister Manoj Sinha, quoting the IMG report.

The group estimated the total exposure of banks and financial institutions to the telecom sector at Rs 2.44 lakh cr.

The inter-ministerial group dismissed the industry argument that the whole sector was in crisis, and said there were “pockets of financial stress.”

“Each telecom service provider has varying level of debt exposure, different capital structure, varying cash flows and hence varying levels of repayment capacity. Hence.. the entire sector cannot be said to be in financial stress,” Sinha quoted from the Group’s report.

The findings of the group could disappoint incumbent telecom officials, who often blame the government’s “flawed spectrum reserve price policy” for their high debt levels.

They have also blamed ‘predatory pricing’ by Reliance Jio for their troubles, while Jio countered that their problems were the results of underinvestment and too much leverage.

“The sector is in the midst of consolidation. The competitive context of the industry has led to accumulation of debt, a decline in EBIDTA and requirement of periodic infusion of additional equity,” he went on.

The IMG was set up around the middle of the year, and gave its findings in August. The group met eight times and held consultations with all the major service providers and involved banks.

The report was not in favor of giving any large financial support package or debt relief for the telecom companies.

“In view of this the primary solutions to the current problems in the sector will come internally from the telecom service providers and they remain liable to service the debt taken by them,” it held.

“Any proposed government intervention needs to be carefully calibrated to ensure that the short term pain points are somewhat eased giving the sector time to rework its investment and business strategy.”


The inter-ministerial group made six recommendations, aimed at giving wriggle-room to telecom companies to tide over the current cash flow issues.

Addressing the issue of spectrum pricing, the group suggested that the “approach to fixing the reserve price for spectrum may be reviewed for optimization in line with international best practices.”

It also gave the government the discretion of when to conduct the next auction, instead of stipulating a particular date, and also urged that harmonization — or juggling — of spectrum for efficiency be conducted as soon as possible.

The group also suggested the replacement of the current provision of Prime Lending Rate by the more realistic measure of MCLR or Marginal Cost of Lending Rate to calculate the interest payable by companies to the government as part of their ‘EMI’ package for spectrum purchases.

It also suggested that only the surplus or gain from spectrum trading should be added to Adjusted Gross Revenue (AGR) for the purpose of calculating various dues such as revenue share.

As already reported, it also suggested that telcos be given a one-time opportunity to opt 16 equal installments instead of the currently permitted 10 installments.