Lifeline for telcos as govt offers four-year moratorium on dues

Wednesday 22nd September 2021 07:02 EDT

The central government approved several measures to extend a lifeline to the cash-strapped telecom sector, including a redefinition of the much-litigated concept of adjusted gross revenue (AGR) to exclude non-telecom revenue and a four-year moratorium on players’ dues to the government. Union Telecom Minister Ashwini Vaishnaw said the government was keen on ensuring that there were more players in the sector and consumers retained choices, when asked about the fears about a duopoly emerging with just two major telecom players - Bharti Airtel and Reliance Jio.

In all, Vaishnaw announced nine structural reforms and five procedural reforms for the sector, including a fixed calendar for spectrum auctions with an extended tenure of 30 years for future spectrum allocations, and a mechanism to surrender and share spectrum. Foreign direct investment (FDI) in the sector has also been allowed up to 100% under the automatic route, from the existing limit of 49%. Together, these measures would pave the way for large scale investments into the sector, including for 5G technology deployment, and generate more jobs, he said.

Experts are, however, not sure the package would be enough to keep their troubled joint venture Vodafone Idea Limited (VIL) afloat as the moratorium on AGR dues, spectrum dues and interest payments, would only provide temporary relief with these deferred dues to be payable eventually with interest. The tariff regime still needs a reboot for players to sustain operations, they said, echoing Bharti Airtel top brass.

The earlier definition of AGR, backed by the Telecom Department and upheld by the Supreme Court in 2019, had made telcos liable to pay £16 billion. Last September, the apex court had granted players 10 years to pay up, starting April 2021. The change in definition that will reduce the burden on telcos, applies only prospectively, so those past dues remain payable.

Interest on those dues will now be compounded annually instead of monthly and the Minister said interest would be charged at a ‘reasonable’ rate of MCLR plus 2%. MCLR refers to the lowest lending rate banks are permitted to offer - the marginal cost of funds-based lending rate.

Rating agency ICRA assessed that the moratorium on AGR dues provides an annual cash flow breather of around £1.4 billion for the industry while the moratorium on spectrum dues gives another £3.2 billion of annual cash flow relief as a whole. “Further, a moratorium of four years gives enough time for industry to carry out fundamental improvements by way of increasing tariffs, which is critical from the industry perspective,” said Sabyasachi Majumdar, senior vice-president at ICRA.
Bharti Airtel Managing Director and CEO for India and South Asia, Gopal Vittal, said these reforms would further boost the firm’s efforts to invest in the digital economy. “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 to continue investing in new technologies and innovation to bring world-class services to customers,” he added.

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