Govt provides much needed ‘immediate’ relief to the telecom sector

Cash strapped Indian telecom sector was looking at the govt for long and govt abides…

The much anticipated reforms are announced. Broadly they provide deferment of the immediate regulatory payments and a cleaner future process to operate.

Key points –

  • 4 year moratorium on all spectrum and Adjusted Gross Revenue (AGR) dues. However, interest would be payable if any Company opts for the moratorium. The interest can also be converted into equity after four years.
  • AGR in future would be levied only on telecom revenues as against the disputed interpretation previously whereby it was levied on the total revenues including the non-telecom revenues.
  • Bank Guarantee (BG) requirements against statutory dues has been cut to 20%; 1 BG to be sufficient across different cities.
  • No BGs required to secure instalment payments in the upcoming auctions.
  • Interest rate on late payments has been cut; penalty interest on penalty components is scrapped.
  • The spectrum auctions now onwards will be done for a period of 30 years instead of the 20 years currently. Auction calendar has been fixed – to take place in Q4 of each FY.
  • A Company can surrender it’s spectrum after completing a 10-year lock-in period from the date of purchase.
  • Spectrum sharing is being encouraged and the additional Spectrum Usage Charges (SUC) of 0.5% for spectrum sharing is removed.
  • The interest which is compounded monthly on the SUC will now be compounded annually and also the interest rate will be lowered, based on MCLR + 2% instead of MCLR + 4%.
  • Foreign Direct Investment (FDI) in the sector has also been allowed up to 100% under the automatic route, from the existing limit of 49%.

All in the, the announcements are much better than the industry would have expected.

Whether this has resulted in sudden revival of the whole industry whereby investors would be running to invest – unlikely.

However, whether it has given a chance and breathing space for the troubled players – for sure.

For Jio – seems business as usual.

For Airtel – it would be the biggest beneficiary as the announcements allow the Company to do a much more efficient capital structuring. It’s like an additional line of funding that has come to them to manage their AGR and payment obligations.

For Vodafone Idea – the reforms would force promoters to atleast have a relook and decide whether they should infuse additional funds or not. The fact remains, there funding requirement is just too large and they need external large investor to have any chance of revival.

Subscribe
Notify of
guest
6 Comments
Inline Feedbacks
View all comments
6
0
Would love your thoughts, please comment.x