Thursday Brief

In my blog of 24^th August 2021, I had written about Vodafone-Idea (VI) is heading towards bankruptcy and problems faced by the operators in the telecom sector, and unless the Govt announce the relief package for this sector, there will be many problems. These problems will be affecting the operations of all telecom operators. At last, govt has come out with the relief package for this sector.

The major relief given by govt is that a four-year moratorium on the Spectrum and Adjusted Gross Revenue (AGR) payments. The other Reliefs and Reforms are as follows

• Rationalisation of AGR-non telecom revenue will be excluded on the prospective basis from the definition of AGR
• Huge reduction in Bank Guarantee (BG) requirements (80%) against licence fee and other similar levies. No requirements for multiple BGs in different Licenced Service Areas (LCAs) regions in the country. Instead, one BG will be enough.
• From 1^st October 2021, delayed payment of licence fee/spectrum usage charges will attract interest.
• In future auctions, the tenure of the spectrum increased from 20 to 30 years.
• Surrender of the spectrum will be permitted after 10 years for spectrum acquired in future auctions.
• No spectrum usage charge (SUC) for spectrum acquired in future auctions.
• Additional SUC of 0.5% for spectrum sharing removed.
• To encourage investment, 100% Foreign Direct Investment (FDI) under automatic route permitted in the telecom sector.
• For auctions held henceforth, no BG will be required to secure instalment payments.
• The govt will have an option to convert any amount pertaining to the deferred payment due into equity at the end of the moratorium and deferment period.

The moratorium will immediately ease out the stress on the cash flows of telcos to a great extent, especially VI. It had to shell out an amount in the range of Rs 8000 Cr-9000Cr towards AGR payments by 31^st March 2022 and over Rs 15,000 Cr during 2022-23 towards the spectrum payments.

Former Chairman of VI said, “ These reforms demonstrate the govt’s firm commitment to ensuring healthy growth of the industry”.

The CEO of Vodafone group said, “the decision will mark the beginning of a new era of India’s digital ambitions and VI’s continued contribution to creating an inclusive and sustainable digital society to the benefits of all citizens”.

Chairman of Bharti Airtel said, “ what lies ahead is a once in a lifetime opportunity to build the digital infrastructure that is a catalyst for digital aspirations of over one billion Indians”.

Chairman of Reliance Jio Infocom said that “ these are timely steps towards strengthening India’s telecom sector, these reforms will encourage us to bring newer and greater benefits to our customers”.

Experts are, however, not sure the package would be enough to keep the troubled joint venture VI afloat as the moratorium on AGR dues, spectrum dues and interest payments, would only provide temporary relief with these deferred sues to be payable eventually with interest. The tariff regime still needs a reboot for players to sustain operations.

As per the Cellular Operators Association of India, “ These steps would go a long way in relieving the financial stress the sector is facing, boosting investments, encouraging healthy competition and in offering choice to customers. The announcement is aligned with the telecom industry’s long-standing demands”.

There are different viewpoints from telcos and experts, time will only tell how far these reforms will succeed in improving the operations of the telecom sector. We have to keep our fingers crossed and wait for positive results.

Waiting for your reactions on this blog.

Anil Malik

Mumbai, India

16^th September 2021