Business Standard

Govt responds to telco SOS


- MEGHA MANCHANDA New Delhi, 15 September

In a shot in the arm for the telecom industry, the Union Cabinet on Wednesday approved measures including a four-year moratorium on spectrum-related payments. The relief package is expected to give a boost to the current players, besides attracting internatio­nal investment. To encourage investment, 100 per cent foreign direct investment (FDI) under the automatic route has been permitted in the telecom sector, with all safeguards.

Telecom Minister Ashwini Vaishnaw said these structural reforms would change the framework of the industry.

The measures, which would be applicable for the telecom service providers, would provide relief by easing liquidity and cash flows and help banks having substantia­l exposures to the sector, he said.

Sunil Bharti Mittal, chairman, Bharti Airtel, said: “The latest reforms ensure the industry is able to invest fearlessly and support India’s digital ambitions. These bold initiative­s are reminiscen­t of the decisions taken by the National Democratic Alliance government in 1999, when the telecom sector was at a crossroads, which resulted in an era of affordable mobile services for all Indians.”



Nick Read, chief executive officer of Vodafone Group, said: “The initiative will be the beginning of Vodafone’s contributi­on to building a digital society.” The reforms will go a long way in unshacklin­g the telcom sector. The will bring alive the digital aspiration­s of 1.3 billion people,” said Kumar Mangalam Birla, chairman, Aditya Birla Group, and former chairman of Vodafone Idea.

Reliance Industries Ltd (RIL) Chairman Mukesh Ambani on Wednesday said these would enable the sector to achieve goals set under the Digital India mission.

The telecom sector is one of the prime movers of the economy and the key enabler for making India a digital society. I welcome the Government of India’s announceme­nt of reforms and relief measures that will enable the industry to achieve the goals of Digital India. I thank Prime Minister (Narendra Modi) for this bold initiative,” Ambani said.

The relief includes a moratorium on paying adjusted gross revenues and related dues to the government.

The moratorium, which will be applicable from October 1, 2021, is an optional scheme and the company that decides to avail itself of it will pay interest at the rate of the marginal cost of funds-based lending rate (MCLR) plus 2 per cent.

The MCLR is the minimum lending rate below which a bank is not permitted to lend.

A moratorium of up to four years in annual payments of dues will be protecting the net present value (NPV) of the dues being protected.

The deferment is on payments of spectrum purchased in past auctions (excluding the auction of 2021) for up to four years with the NPV protected at the interest rate stipulated in respective auctions.

The companies will make the necessary payments after the end of the moratorium period or the government can exercise the option to convert the amount pertaining to the deferred payment into equity. This will be finalised by the Ministry of Finance.

Currently, 49 per cent foreign direct investment is allowed under the automatic route; the other conditions remain the same.

FDI is allowed for countries permitted by the Central government to invest in India.

Steering clear of any difference­s with the Supreme Court, the Cabinet decided to rationalis­e the definition of adjusted gross revenue (AGR), prospectiv­ely. The court, in October 2019, had said the definition of AGR included non-telecom revenues as well.

According to the estimates of the Department of Telecommun­ications, Vodafone Idea has to pay ~58,254 crore and Bharti Airtel has to shell out ~43,980 crore as AGR dues. Payments made by the two companies so far stand at ~7,854 crore by Vodafone Idea and ~18,004 crore by Bharti Airtel.

The bank guarantees have been rationalis­ed, which will lead to reduction in such requiremen­ts against licence fees and other levies. The requiremen­t of multiple bank guarantees has been done away with and now the companies can have one bank guarantee for different licensed service areas.

Interest rates have been rationalis­ed and penalties removed. For future spectrum auctions, no bank guarantees will be required to secure instalment payments.

Spectrum acquired in auction can be surrendere­d after 10 years. There will be no spectrum usage charges (SUCS) in future auctions. Additional SUC of 0.5 per cent for spectrum sharing has been removed.

The government has always maintained the telecom sector should not become a duopoly and at the same time the relief measures should not be given to one company.

Till a few years ago, the Indian telecom industry had multiple players and attracted major internatio­nal telecom companies. The numbers fell drasticall­y after many telecom companies had to go out of business following the 2G spectrum allocation scam. Currently, it’s a market of three private players — Reliance Jio, Bharti Airtel, and Vodafone Idea.

Vodafone Idea’s precarious condition even had its arch rival Bharti Airtel rooting for relief. Mittal recently made a case for a three-player telecom market, which would benefit the consumer.

The Supreme Court had last September allowed telcos 10 years for staggered payments of AGR dues while reaffirmin­g the dues raised by the DOT. But earlier this year, Bharti Airtel and Vodafone Idea had moved the Supreme Court, pointing out anomalies in the calculatio­n of the AGR dues, which stood at ~43,000 crore for Bharti Airtel and ~58,000 crore for Vodafone Idea.

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