The Union government on Wednesday announced a much-awaited relief package for the country’s beleaguered telecom sector. The biggest announcement by Union communications minister Ashwini Vaishnaw, as part of nine structural and five procedural reforms, was a four-year moratorium on repayment of AGR (adjusted gross revenues) dues. He, however, maintained it will be revenue neutral for the government.

Under the four-year moratorium, effective from October 1, telecom service providers will need to pay MCLR plus 2% interest. That will provide the much-needed relief for Vodafone Idea, which had to clear statutory dues of ₹58,254 crore, but has paid only ₹7,854 crore. Meanwhile, Bharti Airtel has paid around ₹18,000 crore out of the dues amounting to ₹43,980 crore. Apart from telecom service providers, it will also help banks that have a substantial exposure to these telcos.

The minister announced eight other structural reforms that include rationalisation of bank guarantees; rationalising interest rates and removal of penalties; increased tenure of holding spectrum after future auctions; surrender of spectrum after 10 years; no spectrum usage charge in future and 100% FDI by automatic route. These announcements are likely to improve sentiment in the industry. Vodafone Idea rose 2.9% on the news, while Bharti Airtel closed up 4.5%.

The biggest problem for the industry is related to AGR. Vaishnaw said, “AGR has been a highly contentious issue for several years. It has been decided to rationalise the definition of AGR.” What it means is that all non-telecom revenue will be excluded on prospective basis from the definition of AGR. This is something that the industry has raised in multiple fora with the government and the Department of Telecommunications (DoT).

“The four-year moratorium on spectrum payments and AGR dues will help address financial stress in the sector. The option to convert the due amount into equity is a bold move and will usher in innovation in the sector,” said Prashant Singhal, emerging markets TMT leader, EY.

In a move to reduce the financial stress on the industry, the government has rationalised interest rates and removed penalties. From October 1, delayed payments of licence fee (LF)/spectrum usage charge (SUC) will attract the interest rate of SBI’s MCLR plus 2% instead of MCLR plus 4%. Also in future, interest will be compounded annually instead of monthly. Penalty and interest on penalty have been removed as well.

The duration for holding spectrum in future auctions has also been increased from the current 20 years to 30 years. Similarly after holding spectrum for 10 years and paying a defined surrender amount (yet to be announced), the spectrum can be surrendered. This is a new flexibility in spectrum ownership. Also, operators are now free to go in for spectrum sharing. Most importantly, there will be no SUC for spectrum acquired in future auctions.

The government has announced that there will be an auction calendar, with auctions being held in the last quarter of a fiscal.

Also, while 100% foreign direct investment (FDI) was allowed in telecom, only 49% was through the automatic route. Now, 100% will be through the automatic route, but with safeguards. Bharti Airtel chairman Sunil Bharti Mittal said, “We congratulate and thank the government for undertaking these seminal reforms to lift an industry that’s at the core of the Prime Minister’s Digital India vision. The latest reforms ensure that the industry is able to invest fearlessly and support India’s digital ambitions.”

The minister pointed out that these measures are expected to protect and generate employment opportunities, promote healthy competition, protect interests of consumers, infuse liquidity, encourage investment and reduce regulatory burden on telecom service providers (TSPs).

The package is also expected to boost 4G proliferation, infuse liquidity and create an enabling environment for investment in 5G networks.

This could well be the first step to untangling the mess that telcos are in now.

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