Telcos to TRAI: Discard bank guarantees to increase working capital

BGs are now filed to the Department of Telecom(DoT), and the government has the ability to use them if statutory obligations like licence fees and spectrum usage charges (SUCs) are not paid on time.

To free up more working capital for the impending growth of mobile broadband networks, Reliance Jio, Bharti Airtel, and Vodafone Idea have asked the industry regulator to eliminate bank guarantees (BGs) of all stripes.

The telcos stated in their submissions to the Telecom Regulatory Authority of India (TRAI) on a paper about the rationalization of BGs and service entry fees that BGs not only impose costs on operators but also end up as a coercive tool used by the Controllers of Communication Accounts (CCAs) in government to settle apparent contract condition breaches.

In addition, carriers argue that combining performance and financial BGs would be an expensive and ineffective way to securitize government fees. Separately, India's leading telecom companies have advised TRAI to avoid lowering telecom entry fees in order to deter unreliable players and promote healthy competition.

TRAI asked for opinions on whether BGs should be allowed, whether performance and financial guarantees needed to be combined for all telecom permits, and whether entry fees for telecom licences needed to be further reduced in its discussion paper, which was released in late July.

Reliance Jio stated in its submission to the regulator that "BGs in various licenses/authorisations should be terminated as these don't serve any purpose in securing government income.

It was also said that rather than serving as financial assurances, BGs wind up imposing fees on telecoms and CCAs use them to settle requests without even providing the telecom service providers(TSPs) a chance to contest them.

According to Airtel, BGs should be abolished because they force operators to shoulder additional costs and restrict the development and growth of mobile networks and services by blocking off significant sums of money for the securitization of government obligations that are more focused on compliances.

Airtel stated in its submission to TRAI that the cabinet reforms from the previous year (September 2021) already acknowledged this and reduced the BGs requirement, allowing TSPs to prepay their deferred spectrum liabilities and prepone the future liability of deferred payments.

In accordance with the telecom changes announced in September, the goverment reduced the BGs need for statutory dues like licence payments by 80%. It also did away with the need that BGs guarantee spectrum payments in subsequent auctions.

BGs are now filed to the Department of Telecom(DoT), and the government has the ability to use them if statutory obligations like licence fees and spectrum usage charges (SUCs) are not paid on time.

Jio stated in its proposal that there is no need to retain a merged BG because it is not necessary to guarantee government revenues or service provider performance. However, Jio and Vi also stated that the FBG and PBG may be combined because they are permanent in nature if TRAI believes that BGs would need to be maintained regardless of the telcos' submission.

Financially struggling Vi, however stated that while the performance and financial BGs may be combined into a single consolidated BG, the quantum should be decreased by 50% for both PBG and FBG parts as a combined BG would increase the exposure risk for telecoms.

Additionally, all telcos have requested that TRAI refrain from rationalising the current level of entry costs, claiming that they are currently reasonable and do not create an obstacle for serious operators to enter the market.

"Regardless of the type of licence, the entry cost should not be reduced, (particularly) to ensure robust competition and a level playing field prevail in the business, which would enable the sector to attract investments and encourage only serious companies," Airtel stated in its proposal.