India Govt approves relief package for telecom operators

Ericsson for mobile Internet
The Union Cabinet has approved two important measures — related to payment and spectrum holding — assisting Indian telecom opertors to improve their financial conditions and stay in business.

These include restructuring the deferred payment liabilities of spectrum auction of telecom service providers and revising the limit of the cap for spectrum holding for telecom service providers.

Incidentally, the new measures will mainly benefit Indian telecom operators such as Bharti Airtel, Idea Cellular, Vodafone India, Reliance Jio and BSNL. Other operators have already exited or are in the process of exiting from business.

The telecom ministry has given one-time opportunity for mobile service providers to opt for up to 16 installments apart from currently permitted 10 installments. The increased number of installments is based upon the principle that the Net Present Value (NPV) of the payment due is protected as per respective notice inviting application for auction of spectrum from 2012. The total amount received will be higher by Rs 74,446 crore till 2034-35.

The Cabinet also approved the revision of limits of cap for spectrum holding by TSPs. The new spectrum cap will be 35 percent against the current limit of 25 percent. The telecom ministry has also removed the current intra-band cap and introduced a cap of 50 percent on the combined spectrum holding in the sub-1 GHz bands — 700 MHz, 800 MHz and 900 MHz bands.

There will be no cap for individual or combined spectrum holding in above 1 GHz spectrum band. The Government may introduce revised spectrum caps limits after Final Acts of World Radio communication Conference (WRC) 2019.

Indian telecom regulator TRAI had recommended revision in the existing limits of cap for spectrum holding taking into consideration the technological advancement, efficient use of spectrum, measures to facilitate consolidation etc.

The restructuring of the deferred payment liability will assist Indian TSPs to increase the cash flow. Revision in the limit for the spectrum cap holding will facilitate consolidation of telecom licenses and may encourage the participation in the future spectrum auction. 5G spectrum will be available for purchase during the next auction.

The entry of Reliance Jio — promoted by Mukesh Ambani — has resulted into the slow down in the Indian telecom services industry.

Niren Patel, partner, Khaitan & Co, said: “Telecom operators will be able to trade in excess (subject to the prescribed time limit) as well as the current spectrum held by them with other telecom operators depending upon their current spectrum holdings.”

Each telecom operator has certain core circles that generates bulk of its revenues and this would enable them to strategically evaluate the need to either reduce their circle-wise businesses or close them entirely depending upon profitability and monetize their spectrum in underperforming circles.

Profitability as well as reduction of debt levels will be further boosted by the Government allowing restructuring of Deferred Payment Liabilities for spectrum.

Niren Patel said the next changes that the Government should consider to further boost the telecom sector are easing the process of obtaining approval from the DoT (providing a fixed timeline for grant of DoT approval upon receipt of the NCLT order), better functioning of WPC and SACFA and providing flexibility in complying with MRO and EMF obligations/ procedures by amending the Telecom Merger and Acquisition Guidelines dated 20th February 2014.

The new measures will give increased time for telecom operators to repay cost of spectrum, from 12 years earlier to 16 years now, while also reducing the interest on overdue payments.

Cellular Operators Association of India (COAI) said that the restructuring of the spectrum liabilities will extend only minimal benefits.

“The new spectrum caps will facilitate consolidation in the industry – Jio and RCom and Idea and Vodafone,” said Rajan Mathews, director general, COAI. “The debt payment extension will have only a minimal benefit through cash flow relief and that total payments will increase.”

COAI said the government did not address major issues such as excessive taxes and levies of 30 percent or more.

Deloitte India’s Hemant Joshi said the telecom ministry should address the fundamental issue of Rs 7 lakh crore debt and other problem areas such as race to the bottom on pricing of mobile services, significant annual servicing costs and declining revenues.