On 15 September 2021, The Cabinet approved several measures to extend a lifetime to the cash-strapped telecom sector, including a redefinition of the much-litigated concept of adjusted gross revenue (AGR). Union Telecom Minister Ashwini Vaishnaw said that the government was keen on ensuring that 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 sectors. Including a fixed calendar for spectrum auction with an extended tenure of 30 years for future spectrum and share spectrum. Foreign direct investment (FDI) in the telecom sector has also allowed up to 100% under the automatic route, from the existing limit of 49%. Together, these measures would pave the way for large scale investment into the sector, including for 5G technology deployment and generate more jobs, Mr Vaishnaw said.
Change in AGR Definition on telecom sector
The earlier definition of AGR, backed by the Telecom Department and upheld by the Supreme court in 2019, had made telcos liable to pay Rs.1.6 lakh crore. Last September, the Apex Court had granted players ten 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 [Merginal Cost of Lending Rate] plus 2%. MCLR refers to the lowest lending rate banks are permitted to offer─ the marginal cost of funds-based lending rate.
Change in Moratorium Fees
The package, which includes one of the most important decisions approved by the Cabinet as part of the telecom relief package, is the moratorium of dues. A four-year moratorium has been approved on dues of telecom service providers (TSPs). However, TSPs who want to opt for the moratorium will have to pay interest on the amount availed under the benefit.
How much is the due pay telecom company to government?
The earlier definition of AGR, backed by the Telecom Depart6ment and upheld by the Supreme Court in 2019, had made telcos liable to pay Rs.1.6 lakh crore. Last September, the Apex Court had granted players 10 years to pay up, starting April 2021. The Telecom firms─ Bharti Airtel, Vodafone Idea and Reliance Communication- owed nearly Rs.92000 crore to the Centre as license fee and Rs.41,000 crore as Spectrum usage fees, as per the telecom department.
Rating agency ICRA assessed that the moratorium on AGR dues provides an annual cash flow breather of around Rs.14000 crore for the industry while the moratorium on spectrum dues gives another Rs.32000 crore of annual cash flow relief as a whole. “Further, a moratorium of four years gives enough time for the industry to carry out fundamental improvements by way of increasing tariffs, which is critical from the industry perspective,” said Sabyasachi Majumder, senior vice-president at ICRA.
What happen Vodafone Idea under this change?
Vodafone-Idea limited had to shell out an amount in the range of Rs.8000 crores to 9000 crores towards the AGR payment by March 31, 2022, and over Rs.15000 crore during 2022-23 toward the spectrum payments. After the four-year moratorium, the government will have the option to convert the remaining dues into equity in the companies. “Whatever instalment is left after four years, if it is felt that dues are to be converted to equity, the government will have that option. It is not the company’s option,” Mr. Vaishnaw told reporters after the Cabinet meeting.
Kumar Mangalam Birla said the measure “will go long way in unshackling the telecom sector” and “demonstrate the government’s commitment to ensuring healthy growth of the industry”. “The measures also reflect the decisiveness of the Prime Minister, the telecom minister and the government to address long-standing issues. These reforms will bring alive the digital aspirations of 1.3 billion people and accelerate India’s journey to be a digitally powered economy as envisaged by the honourable Prime Minister,” a Vodafone Idea statement quoted him as saying.
Conclusion
While it provides time to put their house in order, the telcos’ overall liability does not come down and ultimately they will have to raise tariffs to generate sufficient cash flows. A long-standing demand for the government’s intervention in setting telecom floor tariffs, as it has done in the civil aviation sector to protect competition, did not find a place in the relief package.