Telecom sector gets a rescue package, finally

The government is trying to save the telecom markets from turning into a one-horse race.

 Telecom sector gets a rescue package, finally

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• The story: On September 15, the Indian government announced a "rescue package" for the troubles telecom sector, as was demanded by some struggling firm. It included a moratorium of four years for the payment of the Adjusted Gross Revenue (AGR) dues, providing a relief to the debt-strapped telcos - Vodafone Idea and Bharti Airtel.
• Telecom market of India: From a once-bustling market of many players competing ferociously, it has been reduced to just three private players, and a couple of government ones. Of the three private players, two are struggling with one on the deathbed (Vodafone Idea). This is not a good situation from any perspective, as the domination of just one player (Reliance Jio) would not help even the government in the future, which is looking at launching 5G services.
• What happens now: The government wants to boost 4G proliferation, infuse liquidity and create an enabling environment for investment in 5G networks with the new set of reform measures.
• Structural Reforms announced:

1. Non-telecom revenue will be excluded on prospective basis from the definition of AGR.
2. Huge reduction in BG requirements (80%) against License Fee (LF) and other similar Levies. There will be no requirements for multiple BGs in different Licensed Service Areas (LSAs) regions in the country, instead, one BG will be enough.
3. Penalty and interest on penalty has been 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% instead of MCLR plus 4%; interest compounded annually instead of monthly.
4. No BGs will be required to secure instalment payments.
5. Tenure of spectrum increased from 20 to 30 years in future auctions.
6. Surrender of spectrum will be permitted after 10 years for spectrum acquired in the future auctions.
7. No requirement of Spectrum Usage Charge (SUC) for spectrum acquired in future spectrum auctions.
8. Additional SUC of 0.5% for spectrum sharing has been removed.
9. 100% Foreign Direct Investment (FDI) under automatic route permitted in Telecom Sector has been allowed to encourage investment

• Procedural Reforms announced:

1. Spectrum auctions will be normally held in the last quarter of every financial year.
2. Cumbersome requirement of licenses under 1953 Customs Notification for wireless equipment has been removed.
3. Self-KYC (App based) permitted. E-KYC rate revised to only Rs 1. Now shifting from prepaid to post-paid and vice-versa will not require fresh KYC.
4. Paper Customer Acquisition Forms (CAF) will be replaced by digital storage of data and from now on, warehouse audit of CAF will not be required.
5. SACFA clearance for telecom towers has been eased, so portals of other agencies -- such as civil aviation -- will be linked with DOT Portal.

• Liquidity requirements for TSPs:

1. Deferment of upto four years in annual payments of dues arising out of the AGR judgement by protecting the Net Present Value (NPV) of the due amounts being protected.
2. 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.
3. TSPs will have the options to pay the interest amount arising due to the said deferment of payment by way of equity.
4. Government will have the option to convert the due amount pertaining to the said deferred payment by way of equity at the end of the moratorium or deferment period.

• EXAM QUESTIONS: (1) Explain why and how the once vibrant telecom market of India became nearly a one-horse race, in just five years. (2) What is the AGR problem in telecom sector of India? Explain.

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#Telecom #Competition #Rescue #Airtel #Jio #VodafoneIdea

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