Cabinet approves relief package for stressed telecom sector

Telecom Minister Ashwini Vaishnav said in a press briefing that the Union Cabinet has also approved nine structural changes and five process reforms that will bring about a qualitative change in the sector.

One of the key elements of the package is relief on dues related to adjusted gross revenue (AGR), which is expected to benefit companies like Vodafone Idea and Bharti Airtel. The move will likely boost cash flow, ease the financial burden, help save jobs in the sector and ensure competitiveness in the industry.

“AGR or Adjusted Gross Revenue has been a contentious and highly litigation issue. It has been decided to rationalize the definition of AGR. Non-telecom revenue will be deducted from AGR. It resolves this contentious issue,” Vaishnav said.

The cabinet also approved a moratorium of four years on the dues of the telecom sector. In order to protect the government revenue, interest will be payable by those who have availed the moratorium. It will be MCLR plus 2%. The minister said that this will solve the cash flow problem faced by the industry and the better cash flow can be used for technology upgradation.

The total liabilities of Vodafone Idea is ₹1.92 trillion. Out of this, it is outstanding ₹58,000 crore as AGR dues to the government. The balance amount includes spectrum-related dues and bank loans. In July, the Supreme Court had dismissed the telco’s plea to allow payment of self-assessed AGR dues, which are lower than those demanded by the DoT.

The other structural reform spectrum is regarding user fee and license fee and other charges. Heavy interest, fines and interest have been imposed on the penalty system on these charges, the minister explained.

“This regime was an undue burden on industry participants. Today it has been rationalised. Monthly compound interest has been converted to annual compounding. The marginal cost of funds based lending rate (MCLR) plus a very reasonable interest rate of 2% has been approved and the penalty has been completely abolished. These two decisions have opened the way for huge investments in the telecom sector.”

Vaishnav said that new jobs will also come from the investment.

The duration of spectrum in future auctions will be 30 years instead of 20 now. “If someone took spectrum and the business conditions and technology changed, the spectrum can also be surrendered, after paying a defined surrender fee, after a lock-in period of ten years. This is a great flexibility given to the industry,” the minister said.

The minister said the complexities of spectrum distribution have also been removed and spectrum distribution is fully allowed.

The government also liberalized foreign ownership rules. 100% FDI was allowed in the telecom sector but only 49% was through the automatic route. “Today, the cabinet has decided that 100% FDI is allowed in this sector in the automatic route with safeguards,” the minister said.

Vodafone Idea and Bharti Airtel companies are likely to benefit from this package. Vodafone Idea, in its annual report for the year, said that the operating environment remained challenging due to volatile pricing and intense competition in the market, which was further aggravated by the COVID-19 pandemic. However, the company sees the increased digital penetration as a “huge opportunity” when pricing resumes in the future. To deal with the financial challenges, Vodafone Idea had taken an initiative. ₹40 billion annually cost saving exercise in the last financial year.

On August 4, Vodafone Idea’s board accepted chairman Kumar Mangalam Birla’s request to step down after he distanced himself from the troubled telecom operator, Mint reported.