Major Reforms Announced in Telecom Sector. Game changer for Debt-ladden players?
Author: Sathvik Reddy Sudireddy, 3rd Year, BA; LLB (Hons), Amity Law School, Noida
Abstract:
The Union government on 15th September announced several measures to extend a lifeline to the cash-strapped telecom sector, including a redefinition of much-litigated concept of “Adjusted Gross Revenue” (AGR).
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 is provided.
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.
According to Union Minister of Telcom Ashwini Vaishnaw's statement: ‘The government is keen on ensuring that there will be more players in the sector and consumers retained choices.’ In all, he announced nine structural reforms and five procedural reforms for the sector.
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Structural Reforms :
I) Rationalization of Adjusted Gross Revenue: Non-telecom income will be barred on imminent premise from the meaning of AGR.
ii) Bank Guarantees (BGs) think: Huge decrease in BG prerequisites (80%) against License Fee (LF) and other comparative Levies. No prerequisites for quite some time in various Licensed Service Areas (LSAs) districts in the country. All things considered, One BG will be sufficient.
iii) Interest rates supported/Penalties eliminated: From 01/10/2021, Delayed installments of License Fee (LF)/Spectrum Usage Charge (SUC) will draw in the financing cost of SBI's MCLR in addition to 2% rather than MCLR in addition to 4%; premium accumulated every year rather than month to month; punishment and premium on punishment eliminated.
iv) For Auctions held hence, no BGs will be needed to get portion installments. The industry has developed and the previous act of BG is as of now not needed.
v) Spectrum Tenure: In future Auctions, the residency of range expanded from 20 to 30 years.
vi) Surrender of the range will be allowed following 10 years for range gained later on barters.
vii) No Spectrum Usage Charge (SUC) for range gained in future range barters.
viii) Spectrum sharing empowered an extra SUC of 0.5% for range sharing eliminated.
ix) To empower speculation, 100% Foreign Direct Investment (FDI) under programmed course allowed in Telecom Sector. All protections will apply.
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Procedural Reforms :
I) Auction schedule fixed – Spectrum closeouts to be ordinarily held in the last quarter of each monetary year.
ii) Ease of working together advanced – a bulky prerequisite of licenses under 1953 Customs Notification for remote gear eliminated. Supplanted with self-statement.
iii) Know Your Customers (KYC) changes: Self-KYC (App based) allowed. E-KYC rate changed to just a single Rupee. Moving from Prepaid to Post-paid as well as the other way around won't need a new KYC.
iv) Paper Customer Acquisition Forms (CAF) will be supplanted by the computerized capacity of information. Almost 300-400 crore paper CAFs lying in different distribution centers of TSPs won't be needed. Stockroom review of CAF won't be needed.
v) SACFA freedom for telecom towers facilitated. The spot will acknowledge the information on an entryway dependent on the self-statement premise. Entries of different Agencies (like Civil Aviation) will be connected with DOT Portal.
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What are AGR and its applicability here?
AGR means Adjusted Gross Revenue. It is the utilization and authorizing expense that telecom administrators are charged by the Department of Telecommunications (DoT). It is isolated into range utilization charges and permitting expenses, fixed between 3-5 percent and 8 percent individually.
The earlier definition of AGR, backed by the Telecom Department and upheld by the Supreme Court in 2019, had made telcos liable to pay 1.6 lakh crore.
Last September, the apex court granted players 10 years to pay up starting April 2021. The changes in definition that will reduce the burden on telcos, apply only prospectively, so that past dues remain payable.
Changes post bill:
*Now only core business revenue will be shared with the government, not on the overall revenue.
*Interest on those dues will now be compounded annually instead of monthly and the minister said interest would be charged at a ‘reasonable’ sale of Marginal Cost of Lender Rate (MCLR) plus 2%. MCLR means the lowest rate at which banks could offer loans.
Moratorium:
It basically provides the amount of freezing of time to not pay up for liabilities but must pay interest.
The package, which includes one of the most important decisions approved by the cabinet as part of the telecom relief package is a moratorium on dues. A four-year moratorium has been approved on dues of Telecom Service Providers (TSPs). However, TSPs who want to opt for a moratorium will have to pay interest on the amount availed under the benefit.
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Pay Up left:
According to 2019, it is between 1.6 – 1.9 lakh crores.
The firms Bharti Airtel, Vodafone Idea, and Reliance Communications owed nearly 92,000 crores to the center as license fees and 41,000 crores as spectrum usage fees, as per the telecom department.
Rating Agency ICRA asserted that the moratorium on AGR dues provides an annual cash flow breather of around 14,000 crores for the industry while the moratorium on Spectrum dues gives another 32,000 crores of annual cash flow relief as a whole.
“Further, a moratorium of four years gives enough time for the industry to carry out fundamental improvements by the way of increasing tariffs, which is critical from the industry perspective,” said Sabyasachi, Senior VP at ICRA.
For customers, shifting from prepaid to postpaid and vice versa will not require fresh KYC. Spectrum auctions are normally held in the last quarter of every financial year.
A glimpse of the Vodafone Idea Situation:
Vodafone Idea Limited (VIL) had to shell out an amount in the range of 8,000 – 9,000 crore towards the AGR payments by March 31, 2022, and over 15,000 crores during 2022-23 towards the spectrum payments.
If anyone is unable to pay up even after 4 years:
After four years moratorium, the government will have the option to convert the remaining dues into equity in the companies. Whatever installment is left after 4 years, if it is felt that dues are to be converted to equity the government will have the option.
Conclusion:
While it provides time to put their house in order, the telco's overall liability doesn’t come down and ultimately, they will have to raise tariffs to generate sufficient cash flows. A long-standing demand for the government’s intervention in setting telecom floor tariffs, as it has done in the civil aviation sector to protect competition, didn’t find a place in the relief package.
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Reference:
Associate at SD Partners
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