The Union Cabinet on Wednesday approved a big-bang relief package for the stressed telecom sector that includes a four-year break for companies from paying statutory dues, permission to share scarce airwaves, change in the definition of revenue on which levies are paid and 100 per cent foreign investment through the automatic route.
The measures, aimed at providing relief to companies such as Vodafone Idea that have to pay thousands of crores in unprovisioned past statutory dues, also include the scrapping of Spectrum Usage Charge (SUC) for airwaves acquired in future spectrum auctions. Among procedural reforms, shifting from prepaid to post-paid connections and vice-versa will not require fresh KYC.
Briefing reporters on the decisions taken by the Union Cabinet headed by Prime Minister Narendra Modi, Telecom Minister Ashwini Vaishnaw said nine structural reforms for the telecom sector have been approved that are aimed at fostering healthy competition in the sector to provide choice to customers and pave the way for the entry of new players.
The four-year Adjusted Gross Revenue (AGR) dues moratorium is aimed at giving relief to companies such as Vodafone Idea that have to pay thousands of crores in unprovisioned past statutory dues. Telecom companies will have to pay interest on their dues during this period. Also, the government will have an option to convert the due amount pertaining to the deferred payment into equity at the end of the moratorium/deferment period.
The definition of AGR, which had been a major reason for the stress in the sector, has been rationalised prospectively by excluding the non-telecom revenue of telecom companies. AGR refers to revenues that are considered for payment of statutory dues.
The problem started when telecom operators migrated to a new system offered by the government in 1999 under which they agreed to share a certain percentage of revenue with the government. Operators argued that AGR should comprise only revenue from telecom services, but the Department of Telecommunication (DoT) insisted that it should include all revenue earned by an operator including dividends, handset sales, rent and profit from the sale of scrap besides revenue from services. The telecom companies had disputed the definition of AGR, forming the basis for both spectrum charges and license fees, paid to the government.
A long-standing demand, the definition of AGR has now been amended to exclude non-telecom revenue of telcos from payment of statutory levies. The previous definition has led to severe stress for various telecom companies, as well as put them in significant debt as it included all revenues of telecom companies. In the case of Vodafone Idea, it brought into question the company’s ability to be a going concern.
The minister also said that 100% FDI (Foreign Direct Investment) in telecom via the automatic route with safeguards was approved by the Cabinet. So far, up to 49% was allowed through the automatic route and anything thereafter had to necessarily go through the government route. The latest measures are expected to ease the cash flow issues being faced by some players in the industry.
Further, spectrum user charges will be rationalised and there will be now an annual compounding of rates rather than a monthly one. Spectrum can now be surrendered and also shared by the telcos. The government had also decided to have a calendar of spectrum auctions to give more certainty about this important requirement of telcos. Usually, the auction may be done in the last quarter of a financial year.
This follows after Vodafone Idea's former Chairman Kumar Mangalam Birla met Union Communications Minister Ashwini Vaishnaw on September 1, and discussed the health of the sector and the urgent need for government intervention. Days before Birla's resignation as the Chairman of Vodafone Idea, it became public that he had written to the government that he is willing to hand over his stake in the debt-ridden company to government entities in a bid to keep the company operational.
The announcements were welcomed by telecom sector stakeholders.
Lt. Gen. Dr SP Kochhar, Director-General of Cellular Operators Association of India said he welcomed the government’s forward-looking decision on the much-needed reforms for the telecom sector. "These steps would go a long way in relieving the financial stress the sector is facing, boosting investments, encouraging healthy competition and in offering choice to customers. The announcement is aligned with the telecom industry’s long-standing asks," he said.
In a statement, Bharti Airtel said the reform package "heralds a new dawn for the Indian telecom industry and will catalyse explosive growth of this vital sector."
"More importantly, it paves the way for a sustainable three private plus one state-owned telecom operator structure to serve a large market like India," it added.
Gopal Vittal, MD & CEO of Bharti Airtel welcomed the decision and said, "More needs to be done, however, towards a sustainable tariff regime to ensure the industry gets a fair return. This will in turn allow it continue investing in new technologies and innovation to bring world-class services to customers."
With agency inputs