The Cabinet on Wednesday approved several measures to extend a lifeline to the cash-strapped telecom sector, including a redefinition of the much-litigated concept of adjusted gross revenue (AGR) to exclude non-telecom revenue and a four-year moratorium on players’ dues to the government.
Union Telecom Minister Ashwini Vaishnaw said the government was keen on ensuring that there were more players in the sector and consumers retained choices, when asked about the fears about a duopoly emerging with just two major telecom players — Bharti Airtel and Reliance Jio.
In all, Mr. Vaishnaw announced nine structural reforms and five procedural reforms for the sector, including a fixed calendar for spectrum auctions with an extended tenure of 30 years for future spectrum allocations, and a mechanism to surrender and share spectrum. Foreign direct investment (FDI) in the sector has also been allowed up to 100% under the automatic route, from the existing limit of 49%. Together, these measures would pave the way for large scale investments into the sector, including for 5G technology deployment, and generate more jobs, he said.
‘Path-breaking reforms’
Aditya Birla Group chairman Kumar Mangalam Birla termed the changes ‘path-breaking reforms’ that could ‘unshackle’ the industry by addressing its ‘long-standing’ issues, while Vodafone group CEO Nick Read called it a ‘constructive initiative’ after the sector ‘has struggled for many years’.
Experts are, however, not sure the package would be enough to keep their troubled joint venture Vodafone Idea Limited (VIL) afloat as the moratorium on AGR dues, spectrum dues and interest payments, would only provide temporary relief with these deferred dues to be payable eventually with interest. The tariff regime still needs a reboot for players to sustain operations, they said, echoing Bharti Airtel top brass.
Mr. Read hinted at the need for further measures, seeking the ‘continued strong support of the Telecom Minister and the Finance Minister’ for VIL to continue to contribute to ‘India’s digital ambitions.’
“There was a regime of heavy interest, penalty and interest on penalty on payment of licence fees, spectrum user charges and all kinds of charges, which has been rationalised,” the Minister said, adding that AGR calculations would exclude all non-telecom revenue from now and penalties had been completely scrapped.
The earlier definition of AGR, backed by the Telecom Department and upheld by the Supreme Court in 2019, had made telcos liable to pay ₹1.6 lakh crore. Last September, the apex court had granted players 10 years to pay up, starting April 2021. The change in definition that will reduce the burden on telcos, applies only prospectively, so those past dues remain payable.
Interest on those dues will now be compounded annually instead of monthly and the Minister said interest would be charged at a ‘reasonable’ rate of MCLR plus 2%. MCLR refers to the lowest lending rate banks are permitted to offer — the marginal cost of funds-based lending rate.
Rating agency ICRA assessed that the moratorium on AGR dues provides an annual cash flow breather of around ₹14,000 crore for the industry while the moratorium on spectrum dues gives another ₹32,000 crore of annual cash flow relief as a whole.
“Further, a moratorium of four years gives enough time for industry to carry out fundamental improvements by way of increasing tariffs, which is critical from the industry perspective,” said Sabyasachi Majumdar, senior vice-president at ICRA.
‘More needed’
Bharti Airtel Managing Director and CEO for India and South Asia, Gopal Vittal, said these reforms would further boost the firm’s efforts to invest in the digital economy. “More needs to be done, however, towards a sustainable tariff regime to ensure the industry gets a fair return. This will in turn allow it to continue investing in new technologies and innovation to bring world-class services to customers,” he added.
“The moratorium will immediately ease out the stress on the cash flows of the telcos to a great extent, especially Vodafone Idea Ltd [VIL],” reckoned Vipula Sharma, director of ratings and head of infrastructure at Brickwork Ratings.
VIL had to shell out an amount in the range of ₹8,000 crore-9,000 crore towards the AGR payments by March 31, 2022, and over ₹15,000 crore during 2022-23 towards the spectrum payments.
Sonam Chandwani, managing partner at KS Legal & Associates, said the extra time would help manage immediate stress, but it remained unclear how VIL would pay off its obligations and stay viable.
Digital India goal
Reliance Industries chairman Mukesh D Ambani called the telecom sector one of the prime movers of the economy and said the measures announced by the government would enable the industry to achieve the goals of Digital India.
The package aims to infuse investor confidence and give some flexibility to operators and the moratorium of four years on AGR dues from October 1 will provide temporary relief, said Akshat Jain, partner at J. Sagar Associates.
“It does not essentially alleviate the already bleeding balance sheets of the telecom operators since the dues will ultimately have to be paid with interest. It will be interesting to see whether these measures promote competition in the sector and achieve the desired objectives,” he said.
