India’s Union Cabinet on Wednesday approved a relief package for the telecom sector that includes a four-year moratorium on payment of statutory AGR dues by telecom companies as well as allowing 100 percent foreign investment (FDI) through the automatic route.

Vodafone Idea and Bharti Airtel will significantly benefit from today’s development as they will get more time to clear their AGR. Vodafone Idea needs to pay Rs 58,000 crore towards adjusted gross revenue (AGR) dues.

Rationalizing the definition of AGR by excluding the non-telecom revenues from calculating AGR will also help mobile operators to make less payment towards AGR.

What industry has to say

Sunil Bharti Mittal, Chairman of Bharti Airtel said: “The latest reforms ensure that the industry is able to invest fearlessly and support India’s digital ambitions.”

Mukesh D Ambani, Chairman of Reliance Jio, said: “I welcome the Government of India’s announcement of reforms and relief measures that will enable the industry to achieve the goals of Digital India.”

“These steps would go a long way in relieving the financial stress, boosting investments, encouraging healthy competition and in offering choice to customers. The announcement is aligned with the telecom industry’s long-standing asks,” SP Kochhar, Director-General, COAI, said.

Kumar Mangalam Birla, Chairman of Vodafone Idea and Nick Read, CEO of Vodafone Group, have also welcomed the decision.

Analyst comments

“Rationalizing the definition of AGR by excluding the non-telecom revenues and 100 percent FDI, gives a clear signal to the foreign investors that India is committed to bring in reforms which boost the growth of this sector and create a healthy competitive environment,” Peeyush Vaish, Partner & Telecom Sector Leader, Deloitte India, said.

Rating agency ICRA said the moratorium on AGR dues provides annual cash flow breather of around Rs 14,000 crore for the industry while the moratorium on spectrum dues gives another Rs 32,000 crore of annual cash flow relief for the industry.

“Measures like rationalising of the AGR definition prospectively is EBITDA accretive and a reduction in SUC on spectrum sharing eases the sharing and cash flows to some extent. Spectrum allotment for a period of 30 years and a calendar for spectrum auction is also a positive for the industry,” Sabyasachi Majumdar, Group Head – Corporate Ratings, ICRA said.

“One of the key announcements is allowing 100 percent FDI in the sector which was limited only to 49 percent from the automatic route. The other significant announcement is to have certainty for auctions in the sector which are slated to be conducted mostly in the last quarter of a financial year,” Akshat Jain, Partner, J Sagar Associates, said.

However, the liability to pay AGR dues continues. The deferment for AGR dues cannot be construed as waiver since the package only envisages a moratorium of four years on such AGR dues from 1st October 2021 (appointed date) with the interest and penalties accruing for such deferral. On other issues such as spectrum payments, bank guarantees etc., the relief appears to be prospective in nature.

“While this will temporarily provide some relief, 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,” Akshat Jain, Partner, J Sagar Associates, said.

Details

Telecom Minister Ashwini Vaishnav said nine structural reforms for the telecom sector were approved.

Nine structural reforms 

Rationalization of Adjusted Gross Revenue:  Non-telecom revenue will be excluded on prospective basis from the definition of AGR.

Bank Guarantees (BGs) rationalized: Huge reduction in BG requirements (80 percent) against License Fee (LF) and other similar Levies. No requirements for multiple BGs in different Licenced Service Areas (LSAs) regions in the country. Instead, One BG will be enough.

Interest rates rationalized/ Penalties removed: From 1st October, 2021, Delayed payments of License Fee (LF)/Spectrum Usage Charge (SUC) will attract interest rate of SBI’s MCLR plus 2 percent instead of MCLR plus 4 percent; interest compounded annually instead of monthly; penalty and interest on penalty removed.

For auctions held henceforth, no BGs will be required to secure installment payments. Industry has matured and the past practice of BG is no longer required.

Spectrum Tenure: In future Auctions, tenure of spectrum increased from 20 to 30 years.

Surrender of spectrum will be permitted after 10 years for spectrum acquired in the future auctions.

There will be no Spectrum Usage Charge (SUC) for spectrum acquired in future spectrum auctions.

Spectrum sharing encouraged- additional SUC of 0.5 percent for spectrum sharing removed.

To encourage investment, 100 percent Foreign Direct Investment (FDI) under automatic route permitted in telecom sector.

Procedural Reforms

Auction calendar fixed – Spectrum auctions to be normally held in the last quarter of every financial year.

Ease of doing business promoted – cumbersome requirement of licenses under 1953 Customs Notification for wireless equipment removed. Replaced with self-declaration.

Know Your Customers (KYC) reforms: Self-KYC (App based) permitted. E-KYC rate revised to only One Rupee. Shifting from Prepaid to Post-paid and vice-versa will not require fresh KYC.

Paper Customer Acquisition Forms (CAF) will be replaced by digital storage of data. Nearly 300-400 crore paper CAFs lying in various warehouses of TSPs will not be required. Warehouse audit of CAF will not be required.

SACFA clearance for telecom towers eased. DOT will accept data on a portal based on self-declaration basis. Portals of other Agencies (such as Civil Aviation) will be linked with DOT Portal.

Liquidity requirements 

Moratorium / Deferment of up to four years in annual payments of dues arising out of the AGR judgement, with however,  by protecting the Net Present Value (NPV) of the due amounts being protected.

Moratorium / Deferment on due payments of spectrum purchased in past auctions (excluding the auction of 2021) for up to four years with NPV protected at the interest rate stipulated in the respective auctions.

Option to the TSPs to pay the interest amount arising due to the said deferment of payment by way of equity.

At the option of the Government, to convert the due amount pertaining to the said deferred payment by way of equity at the end of the Moratorium/Deferment period, guidelines for which will be finalized by the Ministry of Finance.

The above will be applicable for all TSPs and will provide relief by easing liquidity and cash flow. This will also help various banks having substantial exposure to the Telecom sector.

The definition of AGR, which had been a major reason for the stress in the sector, has been rationalised by excluding non-telecom revenue of telecom companies.