Struggling Indian telcos get the news they have been waiting for
India's beleaguered operators are doubtless celebrating after the government approved a relief package that will essentially reduce their outgoings.
September 15, 2021
India’s beleaguered operators are doubtless celebrating after the government approved a relief package that will essentially reduce their outgoings.
The cabinet on Wednesday approved what it described as a number of structural and process reforms designed to protect growth and competition in the telecoms sector, as well as serving consumer interests and boosting employment. Put very simply, the package will ensure that there continues to be a three-player market in India.
It’s great news for all three of the countries private players, but especially for Vodafone Idea, which is struggling financially, to put it mildly, and has in recent months repeatedly raised concerns over its own ability to continue operations due to a heavy debt load and the fact that it owes many billions of dollars to the government in spectrum payments and adjusted gross revenue (AGR) dues.
There is relief on those last two points. For AGRs, the government is changing the way they are calculated to exclude non-telecoms revenue and has approved deferred payments of up to four years.
Its plan includes a number of measures related to the acquisition of spectrum and spectrum payments. (See below for a full list of the government’s structural and procedural reforms, plus measures to aid telco liquidity.) Amongst other things, it has removed spectrum usage charges and increased the duration of spectrum licences to 30 years from 20 for future auctions, and is again allowing deferred payments of up to four years on previous spectrum sales.
Another interesting point worth highlighting is the government’s decision to allow telecoms operators to convert some of their dues into equity.
Specifically, it will allow telcos to pay any interest arising from deferred payments of AGRs and spectrum dues in the form of equity and may well permit the full payments in the form of equity on expiry of the four-year moratorium period, although full guidelines for such an outcome are not yet in place.
What that means in practice is that we could see the state step in and take a stake in Vodafone Idea in exchange for writing off some of its debts, although naturally the announcement did not name or focus on any telco in particular.
“The above will be applicable for all TSPs and will provide relief by easing liquidity and cash flow,” the government said. “This will also help various banks having substantial exposure to the telecom sector.”
It’s a bit early for reaction from the telcos themselves; at the time of writing the announcement had only just been published. But it’s safe to say that there is at least one operator in India whose executives will sleep a bit easier tonight. Here it is:
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%) 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% instead of MCLR plus 4%; interest compounded annually instead of monthly; penalty and interest on penalty removed.
For Auctions held henceforth, no BGs will be required to secure instalment 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.
No Spectrum Usage Charge (SUC) for spectrum acquired in future spectrum auctions.
Spectrum sharing encouraged- additional SUC of 0.5% for spectrum sharing removed.
To encourage investment, 100% Foreign Direct Investment (FDI) under automatic route permitted in Telecom Sector. All safeguards will apply.
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.
Addressing Liquidity requirements of Telecom Service Providers
The Cabinet approved the following for all the Telecom Service Providers (TSPs):
Moratorium/Deferment of upto 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 upto 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.
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