Cabinet approves relief packages for the telecom sector

To facilitate investments, consolidation in the sector and enhancing ease of doing business, the Union Cabinet today has approved 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.

"With the restructuring of the deferred payment liability, the cash flow for the telecom service providers will increase in the immediate timeframe providing them some relief," the government said.

"Revising the limit for the spectrum cap holding will facilitate the consolidation of telecom licensees and may encourage the participation in the future auction," the statement added.

The cabinet has approved a restructuring of deferred payment liabilities for a period of 16 years from 10 years earlier.

"The increased installment is based upon the principle that the Net Present Value (NPV) of the payment due is protected as per respective notice inviting application for an auction of spectrum from 2012. The total amount received will be higher by Rs 74,446.01 crore till 2034-35," the government added.

The Cabinet also increased the overall airwaves holding limit to 35 percent from 25 percent. Current government rules bar any merged entity from holding more than 25 percent of the spectrum allocated in a service area or circle, and over 50 percent in a particular band.

"Revising the limit for the spectrum cap holding will facilitate the consolidation of telecom licenses and may encourage the participation in future auctions," the government added.

"Cabinet's approval of recommendations is a huge positive step for the telecom industry. The government has considered the importance of telecom and the sustainability of the Industry. The increase in spectrum holding limit to 35 percent will be helpful considering the ongoing consolidation in the industry," Hemant Joshi, Partner, Deloitte India said

He said, "While the increase in repayment term from 12 to 16 years will reduce the immediate cash outflows to some extent, the fundamental issue of Rs 7 lakh crore debt, race to the bottom on pricing of mobile services, significant annual servicing costs, declining revenues - need to be addressed comprehensively to make the sector viable."

The relief package was cleared by the cabinet Wednesday is based on the recommendations of the Inter-Ministerial Group (IMG) on the telecom sector.

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The IMG was set up in last year in May to suggest reforms in the telecom sector. The sector is in under financial stress due to increasing pressure after the entry Mukesh Ambani-led Reliance Jio with free services and cheap data offers.