Government Approves Relief Package For Telecom Operators; Finally Changes Definition Of AGR

Telecom operators have finally received a package from the government today (September 15, 2021). The new package brings relief for incumbent telecom operators as both have to clear dues, including AGR, SUC, and license fees. However, this package is expected to help Vodafone-Idea.

Reforms In Telecom Sector

The government has announced nine measures to improve the conditions of the telecom operators. It includes removing non-telecom items from the adjusted gross revenue definition. Secondly, the government announced a moratorium with interest rates for four years. Then, 100 percent foreign direct investment under automatic route permitted in the telecom sector. However, there will be some safeguards.

The Government of India has also approved spectrum sharing, surrender of the spectrum will be allowed after 10 years, tenure of spectrum increased from 20 to 30 years, which means telecom companies can use spectrum for 30 years instead of 20 years.

Apart from these structural reforms, the government has announced that there will be some procedural Reforms, such as spectrum auction will be held at the end of the financial year. The cabinet has also shared that ease of doing business will be promoted, some KYC reforms, where users can do self KYC via the app, increasing digital storage of all data, and SACFA clearance for telecom towers eased.

"With competition and customer choice, antyodaya for inclusive development and bringing the marginalized areas into the mainstream and universal broadband access to connect the unconnected. The package is also expected to boost 4G proliferation, infuse liquidity, and create an enabling environment for investment in 5G networks," IT & Telecom minister AswaniVaishnaw said.

The government has also addressed liquidity requirements issues in the telecom sector by approving moratorium/Deferment of up to four years in annual payments of dues from AGR dues and payments of spectrum purchased in past auctions.

Telecom Industry Reactions On The Reforms

Reliance Jio, which is leading the sector welcomes all reforms and relief package and said that the telecom sector is the prime movers of the economy. Similarly, Sunil Mittal, the chairman of India's second-largest telecom operator Airtel said that "The latest reforms ensure that the industry is able to invest fearlessly and support India's digital ambitions. What lies ahead is a once in a lifetime opportunity to build the digital infrastructure that is a catalyst for the digital aspirations of over one billion Indians."

Meanwhile, research firm ICRA believes that the package the Indian Government is the much-needed relief for the sector as a moratorium on AGR dues provides will bring cash flow of about Rs. 14,000 crores and the moratorium on spectrum dues give another Rs. 32,000 crores. The firm said that a moratorium of four years will give enough time to the industry for the improvements.

"Other measures like rationalizing 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. Further, elongation of spectrum allotment for a period of 30 years and a calendar for spectrum auction is also a positive for the industry," said Sabyasachi Majumdar, Senior Vice President & Group Head - Corporate Ratings, at ICRA.