Relief for Telcos

The government announced a four-year moratorium on adjusted gross revenue and spectrum payments, approved redefining AGR to exclude ‘non-telecom’ items and cut the spectrum usage charge to zero — both prospectively — as part of wide-ranging reforms to improve the health of the debt-laden sector and make sure the market has at least three private players. Telecom shares rose.

Other key decisions include giving operators the option to “pay the interest amount arising due to the said deferment of payment by way of equity,” the government said in a statement Wednesday. The Centre also has the option of converting operators’ dues owing to the deferred payment into equity at the end of the moratorium period, guidelines for which will be finalised by the ministry of finance.

The government also decided that carriers can henceforth use spectrum bought in auctions for 30 years instead of 20 years.

It allowed telcos to surrender unused airwaves after the first 10 years by paying a surrender value besides scrapping the 0.5% additional SUC that operators needed to pay for sharing frequencies. The government also reduced the quantum of bank guarantees that operators need to furnish to cover for their dues. It cut the interest rate on delayed licence fee and SUC payments to SBI’s marginal cost of funds based lending rate plus 2 percentage points from MCLR plus 4% while scrapping the penalty and interest on penalty components altogether.

To encourage overseas investments, the government allowed 100% FDI in the sector under the automatic route, compared with the 49% allowed now. This is subject to safeguards such as curbs on investments by companies based in countries that share a border with India, telecom minister Ashwini Vaishnaw said at a briefing after the cabinet meeting.

The package, while is meant for giving relief to an industry with more than Rs 8 lakh crore of debt, will specifically ease cash-strapped Vodafone Idea’s immediate cash flow woes and help it remain in a market that has Reliance Jio Infocomm and Bharti Airtel as the other two private players. State-run Bharat Sanchar Nigam Ltd. is the fourth telco in India.

"Competition is extremely important for telecom industry to offer choice to customers," Vaishnaw said. "The reforms are to ensure healthy competition and attract new players... There will be further reforms when we auction 5G so that more players can enter the sector."

He said that the reform measures — applicable to the entire industry and not any particular company — are revenue neutral for the government. He added that telecom companies already going through the insolvency process will have to get clarity from the National Company Law Tribunal.

Shares of Vodafone Idea – a joint venture between the UK’s Vodafone Group PLC and India’s Aditya Birla Group — rose 7% intraday before closing 2.8% higher at Rs 8.93 on the BSE on Wednesday. Bharti Airtel jumped to its all-time high of ₹734.95, before closing at ₹725.55, up 4.5%. Shares of Reliance Industries, the parent of telecom market leader Jio, ended 0.5% up at Rs 2,378.95.

Reliance Industries chairman Mukesh Ambani said the decisions were "bold". Bharti Airtel chairman Sunil Bharti Mittal called the reforms "seminal". Aditya Birla Group chairman Kumar Mangalam Birla said the steps were "pathbreaking" and will ensure the "healthy growth of the industry".

"Telecom sector is one of the prime movers of the economy," Ambani said. The "reforms and relief measures… will enable the industry to achieve the goals of Digital India."

Mittal said the steps will "ensure that the industry is able to invest fearlessly and support India’s digital ambitions."

Vodafone Group CEO Nick Read said the measures will support a competitive and sustainable telecom sector in India, and hoped that they will usher in a "new era" for India’s digital ambitions and for Vi’s "continued contribution to creating an inclusive and sustainable digital society".

More needs to be done toward a sustainable tariff regime to ensure the industry gets a fair return, said Gopal Vittal, MD and CEO, India and South Asia, Bharti Airtel.

Further, extending spectrum allotment for a period of 30 years and a calendar for spectrum auctions is also a positive for the industry.

Vodafone Idea hasn’t been able to complete its ₹25,000 crore fundraising plan, leading to the telco ceding ground rapidly to rivals Jio and Airtel. Birla had blamed the sector’s lack of viability as the chief reason.

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