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Mega relief package for telecom sector: 4-yr moratorium; AGR rationalised; 100% FDI

Bringing much-needed respite to the cash-strapped telecom sector, the government has unveiled a relief package to ease cash flow and liquidity in the sector
Mega relief package for telecom sector: 4-yr moratorium; AGR rationalised; 100% FDI
Mega relief package for telecom sector: 4-yr moratorium; AGR rationalised; 100% FDI
  • Non-telecom revenue will be excluded on prospective basis from the definition of AGR
  • Additional Spectrum Usage Charge (SUC) of 0.5 percent for spectrum sharing removed
  • To encourage investment, 100 percent Foreign Direct Investment (FDI) under automatic route permitted in telecom sector

New Delhi: Bringing much-needed respite to the cash-strapped telecom sector and companies like Vodafone Idea, the government has rationalised the definition of Adjusted Gross Revenue (AGR) to exclude non-telecom revenue on prospective basis, reduced bank guarantee requirements and has announced a four-year moratorium period on dues. Another major announcement made for the sector is that the government has permitted 100 percent Foreign Direct Investment (FDI) in the sector. Briefing the press after the Cabinet meeting on Wednesday, Telecom Minister Ashwini Vaishnaw said that the reforms will change the framework of the entire telecom sector and broaden the industry. 

‘Reforms expected to promote competition in telecom sector’

“The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, today approved a number of structural and process reforms in the Telecom sector. These are expected to protect and generate employment opportunities, promote healthy competition, protect interests of consumers, infuse liquidity, encourage investment and reduce regulatory burden on Telecom Service Providers (TSPs),” said an official statement.

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“In the backdrop of the outstanding performance of the Telecom Sector in meeting COVID-19 challenges, with huge surge in data consumption, online education, work from home, interpersonal connect through social media, virtual meetings etc., the Reform measures will further boost the proliferation and penetration of broadband and telecom connectivity. The Cabinet decision reinforces the Prime Minister’s vision of a robust Telecom Sector. With competition and customer choice, Antyodaya for inclusive development and bringing the marginalised 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,” the statement added.

The package will provide relief by easing liquidity and cash flow and will also help various banks having substantial exposure to the telecom sector, said the statement.

Structural reforms

Rationalisation of Adjusted Gross Revenue (AGR): Non-telecom revenue will be excluded on prospective basis from the definition of AGR.
Bank Guarantees (BGs) rationalised: Huge reduction in BG requirements (80 percent) 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 rationalised/ penalties removed: From October 1, 2021, delayed payments of License Fee (LF)/Spectrum Usage Charge (SUC) will attract interest rate of SBI’s MCLR plus 2 percent instead of MCLR plus 4 percent, interest will be compounded annually instead of monthly and penalty and interest on penalty have been removed.
For auctions held henceforth, no BGs will be required to secure installment payments. The industry has matured and the past practice of BG is no longer required. 
Spectrum tenure: In future auctions, tenure of spectrum has been 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 percent for spectrum sharing removed.
To encourage investment, 100 percent 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 Re 1. 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. Department of Telecommunications (DoT) will accept data on a portal based on self-declaration basis. Portals of other agencies (such as Civil Aviation) will be linked with the DoT portal.

Package to address liquidity requirements of telecom sector

The Cabinet has 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, however, by protecting the Net Present Value (NPV) of the due amounts.
Moratorium/deferment on due payments of spectrum purchased in past auctions (excluding the auction of 2021) for up to 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 finalised by the Ministry of Finance.

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